<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1999
SECURITIES ACT FILE NO. 333-81995
INVESTMENT COMPANY ACT FILE NO. 811-09331
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X]
PRE-EFFECTIVE AMENDMENT NO. 1
[X]
POST-EFFECTIVE AMENDMENT NO.
[ ]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
[X]
AMENDMENT NO. 5
[X]
(Check appropriate box or boxes)
------------------------
MUNIHOLDINGS FLORIDA INSURED FUND V
(Exact Name of Registrant as Specified in Charter)
------------------------
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
(Address of Principal Executive Offices)
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(609) 282-2800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
TERRY K. GLENN
MUNIHOLDINGS FLORIDA INSURED FUND V
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(Name and Address of Agent for Service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL J. HENNEWINKEL, ESQ. FRANK P. BRUNO, ESQ.
FUND ASSET MANAGEMENT, L.P. BROWN & WOOD LLP
P.O. BOX 9011 ONE WORLD TRADE CENTER
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, NEW YORK 10048-0557
</TABLE>
------------------------
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [X]
------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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<TABLE>
<CAPTION> PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF BEING OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE(1)
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<S> <C> <C> <C> <C>
Auction Market Preferred Shares............................. 1,400 Shares $25,000 $35,000,000 $9,730
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</TABLE>
(1) Transmitted to the designated lockbox at Mellon Bank in Pittsburgh, PA. $278
was previously paid, $9,452 was transmitted in connection with this filing.
----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) of
the Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
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<PAGE> 2
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 28, 1999
PROSPECTUS
$ 35,000,000
MUNIHOLDINGS FLORIDA INSURED FUND V
AUCTION MARKET PREFERRED SHARES ["AMPS(R)"]
1,400 SHARES, SERIES A
LIQUIDATION PREFERENCE $25,000 PER SHARE
------------------------
MuniHoldings Florida Insured Fund V (the "Fund") is a recently organized,
non-diversified, closed-end management investment company that seeks to provide
shareholders with current income exempt from Federal income tax and the
opportunity to own shares whose value is exempt from Florida intangible personal
property tax. The Fund seeks to achieve its objective by investing primarily in
a portfolio of long-term, investment grade municipal obligations the interest on
which, in the opinion of bond counsel to the issuer, is exempt from Federal
income tax and which enable shares of the Fund to be exempt from Florida
intangible personal property tax. The Fund intends to invest in municipal
obligations that are rated investment grade or, if unrated, are considered by
the Fund's investment adviser to be of comparable quality. Under normal
circumstances, at least 80% of the Fund's assets will be invested in municipal
obligations with remaining maturities of one year or more that are covered by
insurance guaranteeing the timely payment of principal at maturity and interest.
------------------------
This prospectus contains information you should know before investing,
including information about risks. Please read it before you invest and keep it
for future reference. This Fund's statement of additional information contains
further information about the Fund and is incorporated by reference (legally
considered to be part of this prospectus). You may request a free copy by
writing or calling the Fund at (800) 637-3863.
------------------------
INVESTING IN THE AMPS INVOLVES CERTAIN RISKS, WHICH ARE DESCRIBED IN THE
"RISK FACTORS AND SPECIAL CONSIDERATIONS" SECTION BEGINNING ON PAGE 5 OF THIS
PROSPECTUS.
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price........... $25,000.00 $35,000,000
Sales Load...................... $ $
Proceeds, before expenses, to
Fund.......................... $ $
</TABLE>
The public offering price per share will be increased by the amount of
accumulated dividends, if any, from the date the shares are first issued.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offence.
One certificate for the AMPS will be ready for delivery to the nominee of
The Depository Trust Company on or about August , 1999.
- ---------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
------------------------
MERRILL LYNCH & CO.
------------------------
The date of this prospectus is August , 1999.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Offering Summary............................................ 3
Risk Factors and Special Considerations..................... 5
The Fund.................................................... 7
Use of Proceeds............................................. 7
Capitalization.............................................. 8
Portfolio Composition....................................... 8
Investment Objective and Policies........................... 9
Description of AMPS......................................... 16
The Auction................................................. 23
Rating Agency Guidelines.................................... 32
Investment Advisory and Management Arrangements............. 33
Taxes....................................................... 34
Description of Capital Shares............................... 36
Custodian................................................... 39
Underwriting................................................ 39
Transfer Agent, Dividend Disbursing Agent and Registrar..... 40
Legal Opinions.............................................. 40
Experts..................................................... 40
Year 2000 Issues............................................ 40
Table of Contents of Statement of Additional Information.... 41
Glossary.................................................... 42
</TABLE>
------------------------
INFORMATION ABOUT THE FUND CAN BE REVIEWED AND COPIED AT THE SEC'S PUBLIC
REFERENCE ROOM IN WASHINGTON, D.C. CALL 1-800-SEC-0330 FOR INFORMATION ON THE
OPERATION OF THE PUBLIC REFERENCE ROOM. THIS INFORMATION IS ALSO AVAILABLE ON
THE SEC'S INTERNET SITE AT HTTP://WWW.SEC.GOV AND COPIES MAY BE OBTAINED UPON
PAYMENT OF A DUPLICATING FEE BY WRITING THE PUBLIC REFERENCE SECTION OF THE SEC,
WASHINGTON, D.C. 20549-6009.
------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriter has not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriter is not, making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the information
appearing in this prospectus is accurate as of the date on the front cover of
this prospectus only. Our business, financial condition, results of operations
and prospects may have changed since that date.
2
<PAGE> 4
OFFERING SUMMARY
This summary is qualified in its entirety by reference to the detailed
information included in this prospectus and the statement of additional
information.
THE OFFERING The Fund is offering a total of 1,400 Auction Market Preferred
Shares, Series A at a purchase price of $25,000 per share plus
accumulated dividends, if any, from the date the shares are
first issued. The AMPS are being offered by Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as underwriter.
The AMPS will be preferred shares of the Fund that entitle their
holders to receive cash dividends at an annual rate that may
vary for the successive dividend periods. In general, except as
described below, each dividend period following the initial
dividend period will be seven days. The applicable dividend for
a particular dividend period will be determined by an auction
conducted on the business day next preceding the start of that
dividend period.
Investors and potential investors in AMPS may participate in
auctions for the AMPS through their broker-dealers.
Generally, AMPS investors will not receive certificates
representing ownership of their shares. Ownership of AMPS will
be maintained in book-entry form by the securities depository
(The Depository Trust Company) or its nominee for the account of
the investor's agent member (generally the investor's
broker-dealer). The investor's agent member, in turn, will
maintain records of such investor's beneficial ownership of
AMPS.
DIVIDENDS AND
DIVIDEND
PERIODS Dividends on the AMPS will be cumulative from the date the
shares are first issued and payable beginning on August ,
1999. Thereafter, in the case of dividend periods that are not
special dividend periods, dividends generally will be payable on
each succeeding Wednesday. After the initial dividend period,
each dividend period for the AMPS will generally consist of
seven days; provided, however, that before any auction, the Fund
may decide, subject to certain limitations and only if it gives
notice to holders, to declare a special dividend period of up to
five years.
Dividends for the AMPS will be paid through the securities
depository (The Depository Trust Company) on each dividend
payment date.
The cash dividend rate on the AMPS for the initial dividend
period ending August , 1999 will be % annualized. For
each subsequent dividend period, the auction agent (IBJ
Whitehall Bank & Trust Company) will hold an auction to
determine the cash dividend rate on the AMPS.
DETERMINATION
OF MAXIMUM
DIVIDEND RATES Generally, the applicable dividend rate for any dividend period
for AMPS will be subject to a maximum applicable rate. The
maximum applicable rate for AMPS will depend on the credit
rating assigned to the shares and on the length of the dividend
period. There is no minimum applicable dividend rate for any
dividend period.
3
<PAGE> 5
ASSET
MAINTENANCE Under the Fund's Certificate of Designation creating the AMPS,
the Fund must maintain
- asset coverage of the AMPS as required by the rating agencies
rating the AMPS, and
- asset coverage of the AMPS of at least 200% as required by the
Investment Company Act of 1940.
The Fund estimates that, based on the composition of its
portfolio at July 23, 1999, asset coverage of the AMPS as
required by the Investment Company Act of 1940 would be
approximately 249% immediately after the Fund issues the AMPS
offered by this prospectus representing approximately 40% of the
Fund's capital.
MANDATORY
REDEMPTION If the required asset coverage is not maintained or, when
necessary, restored, the Fund must redeem AMPS at the price of
$25,000 per share plus accumulated but unpaid dividends thereon
(whether or not earned or declared). The provisions of the
Investment Company Act of 1940 may restrict the Fund's ability
to make such a mandatory redemption.
OPTIONAL
REDEMPTION The Fund may, at its option, choose to redeem all or a portion
of the AMPS on any dividend payment date at the price of $25,000
per share, plus accumulated but unpaid dividends thereon
(whether or not earned or declared) plus any applicable premium.
LIQUIDATION
PREFERENCE The liquidation preference (that is, the amount the Fund must
pay to AMPS shareholders if the Fund is liquidated) of each
share of AMPS will be $25,000, plus an amount equal to
accumulated but unpaid dividends (whether or not earned or
declared).
RATINGS The AMPS will be issued with a rating of "aaa" from Moody's
Investors Service, Inc. and AAA from Standard & Poor's.
VOTING RIGHTS The Investment Company Act of 1940 requires that the holders of
AMPS and any other preferred shares, voting as a separate class,
have the right to elect at least two trustees at all times and
to elect a majority of the trustees at any time when dividends
on the AMPS or any other preferred shares are unpaid for two
full years. The Fund's Declaration of Trust and the Investment
Company Act of 1940 require holders of AMPS and any other
preferred shares to vote as a separate class on certain other
matters.
4
<PAGE> 6
RISK FACTORS AND SPECIAL CONSIDERATIONS
Florida Municipal Bonds. The Fund intends to invest the majority of its
portfolio in Florida municipal bonds. As a result, the Fund is more exposed to
risks affecting issuers of Florida municipal bonds than is a municipal bond fund
that invests more widely.
Interest Rate and Credit Risk. The Fund invests in municipal bonds, which
are subject to interest rate and credit risk. Interest rate risk is the risk
that prices of municipal bonds generally increase when interest rates decline
and decrease when interest rates increase. Prices of longer term securities
generally change more in response to interest rate changes than prices of
shorter term securities. Credit risk is the risk that the issuer will be unable
to pay the interest or principal when due. The degree of credit risk depends on
both the financial condition of the issuer and the terms of the obligation.
Non-diversification. The Fund is registered as a "non-diversified"
investment company. This means that the Fund may invest a greater percentage of
its assets in a single issuer than a diversified investment company. Even as a
non-diversified fund, the Fund must still meet the diversification requirements
of applicable Federal income tax laws. Since the Fund may invest a relatively
high percentage of its assets in a limited number of issuers, the Fund may be
more exposed to the effects of any single economic, political or regulatory
occurrence than a more widely-diversified fund. Even as a non-diversified fund,
the Fund must still meet the diversification requirements of applicable federal
income tax law.
Rating Categories. The Fund intends to invest in municipal bonds that are
rated investment grade by Standard & Poor's, Moody's Investors Service, Inc. or
Fitch IBCA, Inc. It may also invest in unrated municipal bonds that the Fund's
investment adviser believes are of comparable quality. Obligations rated in the
lowest investment grade category have certain speculative characteristics.
Private Activity Bonds. The Fund may invest in certain tax-exempt
securities classified as "private activity bonds." These bonds may subject
certain investors in the Fund to the Federal alternative minimum tax.
Portfolio Insurance. The Fund will be subject to certain restrictions on
investments imposed by guidelines of the insurance companies issuing the
portfolio insurance. The Fund does not expect these guidelines to prevent the
Fund's investment adviser from managing the Fund's portfolio in accordance with
the Fund's investment objective and policies.
Taxes. It is possible that the Fund may not be able to fully dispose of a
sufficient portion of its assets subject to Florida intangible personal property
tax by the last business day of the calendar year. This could subject shares of
the Fund to Florida intangible personal property tax.
Indexed and Inverse Floating Rate Securities. The Fund may invest in
securities whose potential returns are directly related to changes in an
underlying index or interest rate, known as indexed securities. The return on
indexed securities will rise when the underlying index or interest rate rises
and fall when the index or interest rate falls. The Fund may also invest in
securities whose return is inversely related to changes in an interest rate
(inverse floaters). In general, income on inverse floaters will decrease when
short term interest rates increase and increase when short term interest rates
decrease. Investments in inverse floaters may subject the Fund to the risks of
reduced or eliminated interest payments and losses of principal. In addition,
certain indexed securities and
5
<PAGE> 7
inverse floaters may increase or decrease in value at a greater rate than the
underlying interest rate, which effectively leverages the Fund's investment. As
a result, the market value of such securities will generally be more volatile
than that of fixed rate, tax exempt securities. Both indexed securities and
inverse floaters are derivative securities and can be considered speculative.
Options and Futures Transactions. The Fund may seek to hedge its portfolio
against changes in interest rates using options and financial futures contracts.
The Fund's hedging transactions are designed to reduce volatility, but come at
some cost. For example, the Fund may try to limit its risk of loss from a
decline in the price of a portfolio security by purchasing a put option.
However, the Fund must pay for the option, and the price of the security may not
in fact drop. In large part, the success of the Fund's hedging activities
depends on its ability to forecast movements in securities prices and interest
rates. The Fund does not, however, intend to enter into options and futures
transactions for speculative purposes. The Fund is not required to hedge its
portfolio and may choose not to do so. The Fund cannot guarantee that any
hedging strategies it uses will work.
Antitakeover Provisions. The Fund's Declaration of Trust includes
provisions that could limit the ability of other entities or persons to acquire
control of the Fund or to change the composition of its Board of Trustees. Such
provisions could discourage a third party from seeking to obtain control of the
Fund.
Investment Considerations. Investors in AMPS should consider the following
factors:
- The credit ratings of the AMPS could be reduced while an investor
holds the AMPS.
- Neither broker-dealers nor the Fund are obligated to purchase AMPS
in an auction or otherwise nor is the Fund required to redeem shares
of AMPS in the event of a failed auction.
- If sufficient bids do not exist in an auction, the applicable
dividend rate will be the maximum applicable dividend rate, and in
such event, owners of AMPS wishing to sell will not be able to sell
all, and may not be able to sell any, AMPS in the auction. As a
result, investors may not have liquidity of investment.
Secondary Market. The broker-dealers intend to maintain a secondary
trading market in the AMPS outside of auctions; however, they have no obligation
to do so and there can be no assurance that a secondary market for the AMPS will
develop or, if it does develop, that it will provide holders with a liquid
trading market. The AMPS will not be registered on any stock exchange or on any
automated quotation system. An increase in the level of interest rates likely
will have an adverse effect on the secondary market price of the AMPS, and a
selling shareholder may have to sell AMPS between auctions at a price per share
of less than $25,000.
6
<PAGE> 8
THE FUND
MuniHoldings Florida Insured Fund V (the "Fund") is a recently organized,
non-diversified, closed-end management investment company. The Fund was
organized under the laws of the Commonwealth of Massachusetts on May 10, 1999,
and has registered under the 1940 Act. The Fund's principal office is located at
800 Scudders Mill Road, Plainsboro, New Jersey 08536, and its telephone number
is (609) 282-2800.
The Fund commenced operations on July 23, 1999 upon the closing of an
initial public offering of 3,500,000 of its common shares. The proceeds of such
offering were approximately $52,360,000 after the payment of offering expenses.
In connection with the initial public offering of the Fund's common shares, the
underwriter was granted an option to purchase up to an additional 525,000 shares
to cover over-allotments.
The Board of Trustees of the Fund may at any time consider a merger,
consolidation or other form of reorganization of the Fund with one or more other
closed-end investment companies advised by the Fund's investment adviser with
similar investment objectives and policies as the Fund. Any such merger,
consolidation or other form of reorganization would require the prior approval
of the Board of Trustees and the shareholders of the Fund. See "Description of
Capital Shares -- Certain Provisions of the Declaration of Trust."
USE OF PROCEEDS
The estimated net proceeds of this offering will be $34,602,500 after the
payment of offering expenses (estimated to be $135,000) and the sales load.
The net proceeds of the offering will be invested in accordance with the
Fund's investment objective and policies during a period estimated not to exceed
three months from the offer and sale of such shares of AMPS depending on market
conditions and the availability of appropriate securities. Pending such
investment, it is anticipated that the proceeds will be invested in short-term
tax-exempt securities. See "Investment Objective and Policies."
7
<PAGE> 9
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Fund as
of July 23, 1999 and as adjusted to give effect to the issuance of the AMPS
offered hereby.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Shareholders' equity:
Shares of Beneficial Interest (unlimited shares
authorized)
Preferred Shares, par value $.10 per share (no shares
issued; 1,400 AMPS issued and outstanding, as
adjusted, at $25,000 per share liquidation
preference).......................................... -- $35,000,000
Common Shares, par value $.10 per share (3,506,667
shares issued and outstanding)....................... $ 350,667 350,667
Capital in excess of par value attributable to Common
Shares............................................... 52,111,015 51,713,515
Undistributed investment income-net.................... 18,392 18,392
Accumulated realized capital losses on
investments-net...................................... (4,000) (4,000)
Unrealized depreciation on investments-net............. (5,490) (5,490)
----------- -----------
Net assets............................................. $52,470,584 $87,073,084
=========== ===========
</TABLE>
PORTFOLIO COMPOSITION
As of July 23, 1999, approximately 56.3% of the market value of the Fund's
portfolio was invested in long-term municipal obligations and approximately
43.7% of the market value of the Fund's portfolio was invested in short-term
municipal obligations. The following table sets forth certain information with
respect to the composition of the Fund's investment portfolio as of July 23,
1999.
<TABLE>
<CAPTION>
NUMBER OF VALUE
S&P* MOODY'S* ISSUES (IN THOUSANDS) PERCENT
---- -------- --------- -------------- -------
<S> <C> <C> <C> <C> <C>
AAA Aaa 13 $29,588 50.9%
BBB Baa 1 3,144 5.4
A-1 VMIG1 10 22,900 39.4
NR P-1 1 2,500 4.3
-- ------- -----
Total.... 25 $58,132 100.0%
== ======= =====
</TABLE>
- ---------------
* Ratings: Using the higher of Standard & Poor's ("S&P") or Moody's Investors
Service, Inc. ("Moody's") ratings on the Fund's municipal obligations. See
"Schedule of Investments." S&P rating categories may be modified further by a
plus (+) or minus (-) in AA, A, BBB, BB, B and C ratings. Moody's rating
categories may be modified further by a 1, 2 or 3 in Aa, A, Baa, Ba and B
ratings.
8
<PAGE> 10
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide shareholders with current
income exempt from Federal and income tax and the opportunity to own shares
whose value is exempt from Florida intangible personal property tax. The Fund
seeks to achieve its investment objective by investing primarily in a portfolio
of long-term, investment grade municipal obligations issued by or on behalf of
the State of Florida, its political subdivisions, agencies and
instrumentalities, and other qualifying issuers, each of which pays interest
which, in the opinion of bond counsel to the issuer, is exempt from Federal
income tax and which enable shares of the Fund to be exempt from Florida
intangible personal property tax ("Florida Municipal Bonds"). The Fund intends
to invest substantially all (at least 80%) of its assets in Florida Municipal
Bonds, except at times when the Fund's investment adviser, Fund Asset
Management, L.P. (the "Investment Adviser"), considers that Florida Municipal
Bonds of sufficient quality and quantity are unavailable for investment at
suitable prices by the Fund. To the extent the Investment Adviser considers that
suitable Florida Municipal Bonds are not available for investment, the Fund may
purchase other long-term municipal obligations that are exempt from Federal
income taxes but whose value is not exempt from Florida intangible personal
property taxes ("Municipal Bonds"). The Fund will maintain at least 65% of its
assets in Florida Municipal Bonds and at least 80% of its assets in Florida
Municipal Bonds and Municipal Bonds, except during interim periods pending
investment of the net proceeds of public offerings of the Fund's securities and
during temporary defensive periods. Under normal circumstances, at least 80% of
the Fund's assets will be invested in municipal obligations with remaining
maturities of one year or more that are covered by insurance guaranteeing the
timely payment of principal at maturity and interest. The Fund's investment
objective is a fundamental policy that may not be changed without a vote of a
majority of the Fund's outstanding voting securities, as defined in the
statement of additional information under "Investment Restrictions." There can
be no assurance that the investment objective of the Fund will be realized. At
times the Fund may seek to hedge its portfolio through the use of options and
futures transactions to reduce volatility in the net asset value of its shares
of common shares.
The Fund ordinarily does not intend to realize significant interest income
that is subject to Federal income tax or have significant assets subject to
Florida intangible personal property tax. The Fund may invest all or a portion
of its assets in certain tax-exempt securities classified as "private activity
bonds" (in general, bonds that benefit non-governmental entities) that may
subject certain investors in the Fund to a Federal alternative minimum tax.
The Fund also may invest in securities not issued by or on behalf of a
state or territory or by an agency or instrumentality thereof, if the Fund
nevertheless believes such securities pay interest or distributions that are
exempt from Federal income taxation ("Non-Municipal Tax-Exempt Securities").
Non-Municipal Tax-Exempt Securities may include securities issued by other
investment companies that invest in Florida Municipal Bonds and Municipal Bonds,
to the extent such investments are permitted by the Investment Company Act of
1940, as amended (the "1940 Act"). Other Non-Municipal Tax-Exempt Securities
could include trust certificates or other instruments evidencing interests in
one or more long-term Florida Municipal Bonds or Municipal Bonds. Certain
Non-Municipal Tax-Exempt Securities may be characterized as derivative instru-
9
<PAGE> 11
ments. Non-Municipal Tax-Exempt Securities are considered "Florida Municipal
Bonds" or "Municipal Bonds" for purposes of the Fund's investment objective and
policies.
The investment grade Florida Municipal Bonds and Municipal Bonds in which
the Fund will primarily invest are those Florida Municipal Bonds and Municipal
Bonds that are rated at the date of purchase in the four highest rating
categories of S&P, Moody's or Fitch IBCA, Inc. ("Fitch") or, if unrated, are
considered to be of comparable quality by the Investment Adviser. In the case of
long-term debt, the investment grade rating categories are AAA through BBB for
S&P, Aaa through Baa for Moody's and AAA through BBB for Fitch. In the case of
short-term notes, the investment grade rating categories are SP-l+ through SP-3
for S&P, MIG-1 through MIG-3 for Moody's and F-1+ through F-3 for Fitch. In the
case of tax-exempt commercial paper, the investment grade rating categories are
A-1+ through A-3 for S&P, Prime-1 through Prime-3 for Moody's and F-l+ through
F-3 for Fitch. Obligations ranked in the lowest investment grade rating category
(BBB, SP-3 and A-3 for S&P; Baa, MIG-3 and Prime-3 for Moody's; and BBB and F-3
for Fitch), while considered "investment grade," may have certain speculative
characteristics. There may be sub-categories or gradations indicating relative
standing within the rating categories set forth above. Appendix B to the
statement of additional information contains a description of S&P's, Moody's and
Fitch's ratings of Florida Municipal Bonds and Municipal Bonds. In assessing the
quality of Florida Municipal Bonds and Municipal Bonds with respect to the
foregoing requirements, the Investment Adviser will take into account the
portfolio insurance as well as the nature of any letters of credit or similar
credit enhancement to which particular Municipal Bonds are entitled and the
creditworthiness of the insurance company or financial institution that provided
such insurance or credit enhancement. Consequently, if Florida Municipal Bonds
or Municipal Bonds are covered by insurance policies issued by insurers whose
claims-paying ability is rated AAA by S&P or Fitch or Aaa by Moody's, the
Investment Adviser may consider such municipal obligations to be equivalent to
AAA- or Aaa- rated securities, as the case may be, even though such Florida
Municipal Bonds or Municipal Bonds would generally be assigned a lower rating if
the rating were based primarily upon the credit characteristics of the issuers
without regard to the insurance feature. The insured Florida Municipal Bonds and
Municipal Bonds must also comply with the standards applied by the insurance
carriers in determining eligibility for portfolio insurance.
The Fund's investments may also include variable rate demand obligations
("VRDOs") and VRDOs in the form of participation interests ("Participating
VRDOs") in variable rate tax-exempt obligations held by a financial institution,
typically a commercial bank. The VRDOs in which the Fund may invest are
tax-exempt obligations, in the opinion of counsel to the issuer, that contain a
floating or variable interest rate adjustment formula and a right of demand on
the part of the holder thereof to receive payment of the unpaid principal
balance plus accrued interest on a short notice period not to exceed seven days.
Participating VRDOs provide the Fund with a specified undivided interest (up to
100%) in the underlying obligation and the right to demand payment of the unpaid
principal balance plus accrued interest on the Participating VRDOs from the
financial institution on a specified number of days' notice, not to exceed seven
days. There is, however, the possibility that because of default or insolvency,
the demand feature of VRDOs or Participating VRDOs may not be honored. The Fund
has been advised by its counsel that the Fund should be entitled to treat the
income received on Participating VRDOs as interest from tax-exempt obligations
for Federal income tax purposes.
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The average maturity of the Fund's portfolio securities will vary based
upon the Investment Adviser's assessment of economic and market conditions. The
net asset value of the common shares of a closed-end investment company, such as
the Fund, which invests primarily in fixed-income securities, changes as the
general levels of interest rates fluctuate. When interest rates decline, the
value of a fixed-income portfolio generally can be expected to rise. Conversely,
when interest rates rise, the value of a fixed-income portfolio generally can be
expected to decline. Prices of longer-term securities generally fluctuate more
in response to interest rate changes than do short-term or medium-term
securities. These changes in net asset value are likely to be greater in the
case of a fund having a leveraged capital structure, such as that used by the
Fund.
The Fund intends to invest primarily in long-term Florida Municipal Bonds
and Municipal Bonds with a maturity of more than ten years. Also, the Fund may
invest in intermediate-term Florida Municipal Bonds and Municipal Bonds with a
maturity of between three years and ten years. The Fund may invest in
short-term, tax-exempt securities, short-term U.S. Government securities,
repurchase agreements or cash. Such short-term securities or cash will not
exceed 20% of its total assets except during interim periods pending investment
of the net proceeds of public offerings of the Fund's securities or in
anticipation of the repurchase or redemption of the Fund's securities and
temporary periods when, in the opinion of the Investment Adviser, prevailing
market or economic conditions warrant. The Fund does not ordinarily intend to
realize significant interest income that is subject to Federal income tax or to
hold assets which would subject the Fund to Florida intangible personal property
taxes. For a more complete description of Florida Municipal Bonds and Municipal
Bonds, see "Investment Objective and Policies" in the statement of additional
information.
The Fund is classified as non-diversified within the meaning of the 1940
Act, which means that the Fund is not limited by the 1940 Act in the proportion
of its assets that it may invest in securities of a single issuer. However, the
Fund's investments will be limited so as to qualify the Fund for special tax
treatment afforded regulated investment companies under the Federal tax laws.
See "Taxes" herein and in the statement of additional information. To qualify,
among other requirements, the Fund will limit its investments so that, at the
close of each quarter of the taxable year, (i) not more than 25% of the market
value of the Fund's total assets will be invested in the securities (other than
U.S. Government securities) of a single issuer, and (ii) with respect to 50% of
the market value of its total assets, not more than 5% of the market value of
its total assets will be invested in the securities (other than U.S. Government
securities) of a single issuer. A fund that elects to be classified as
"diversified" under the 1940 Act must satisfy the foregoing 5% requirement with
respect to 75% of its total assets. To the extent that the Fund assumes large
positions in the securities of a small number of issuers, the Fund's yield may
fluctuate to a greater extent than that of a diversified company as a result of
changes in the financial condition or in the market's assessment of the issuers.
PORTFOLIO INSURANCE
Under normal circumstances, at least 80% of the Fund's assets will be
invested in Florida Municipal Bonds and Municipal Bonds either (i) insured under
an insurance policy purchased by the Fund or (ii) insured under an insurance
policy obtained by the issuer thereof or any other party. The Fund will seek to
limit its investments to municipal obligations insured under insurance policies
issued by insurance carriers that have total admitted assets (unaudited) of at
least $75,000,000 and
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capital and surplus (unaudited) of at least $50,000,000 and insurance
claims-paying ability ratings of AAA from S&P or Fitch or Aaa from Moody's.
There can be no assurance that insurance from insurance carriers meeting these
criteria will be available. See Appendix C to the statement of additional
information for a brief description of S&P's, Fitch's and Moody's insurance
claims-paying ability ratings. Currently, it is anticipated that a majority of
the insured Florida Municipal Bonds and Municipal Bonds in the Fund's portfolio
will be insured by the following insurance companies that satisfy the foregoing
criteria: Ambac Assurance Corporation, Financial Guaranty Insurance Company,
Financial Security Assurance and MBIA Insurance Corporation. The Fund also may
purchase Florida Municipal Bonds and Municipal Bonds covered by insurance issued
by any other insurance company that satisfies the foregoing criteria. It is
anticipated that initially a majority of insured Florida Municipal Bonds and
Municipal Bonds held by the Fund will be insured under policies obtained by
parties other than the Fund.
The Fund may purchase, but has no obligation to purchase, separate
insurance policies (the "Policies") from insurance companies meeting the
criteria set forth above that guarantee the payment of principal and interest on
specified eligible Florida Municipal Bonds and Municipal Bonds purchased by the
Fund. A Florida Municipal Bond or a Municipal Bond will be eligible for coverage
if it meets certain requirements of the insurance company set forth in a Policy.
In the event interest or principal on an insured Florida Municipal Bond or
Municipal Bond is not paid when due, the insurer will be obligated under its
Policy to make such payment not later than 30 days after it has been notified
by, and provided with documentation from, the Fund that such nonpayment has
occurred.
The Policies will be effective only as to insured Florida Municipal Bonds
and Municipal Bonds beneficially owned by the Fund. In the event of a sale of
any Florida Municipal Bonds and Municipal Bonds held by the Fund, the issuer of
the relevant Policy will be liable only for those payments of interest and
principal that are then due and owing. The Policies will not guarantee the
market value of the insured Florida Municipal Bonds and Municipal Bonds or the
value of the shares of the Fund.
The insurer will not have the right to withdraw coverage on securities
insured by their Policies and held by the Fund so long as such securities remain
in the Fund's portfolio. In addition, the insurer may not cancel its Policies
for any reason except failure to pay premiums when due. The Board of Trustees of
the Fund will reserve the right to terminate any of the Policies if it
determines that the benefits to the Fund of having its portfolio insured under
such policy are not justified by the expense involved.
The premiums for the Policies are paid by the Fund and the yield on the
Fund's portfolio is reduced thereby. The Investment Adviser estimates that the
cost of the annual premiums for the Policies currently ranges from approximately
.02 of 1% to .15 of 1% of the principal amount of the Florida Municipal Bonds
and Municipal Bonds covered by such Policies. The estimate is based on the
expected composition of the Fund's portfolio of Florida Municipal Bonds and
Municipal Bonds. In instances in which the Fund purchases Florida Municipal
Bonds and Municipal Bonds insured under policies obtained by parties other than
the Fund, the Fund does not pay the premiums for such policies; rather, the cost
of such policies may be reflected in the purchase price of the Florida Municipal
Bonds and Municipal Bonds.
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It is the intention of the Investment Adviser to retain any insured
securities that are in default or in significant risk of default and to place a
value on the insurance, which ordinarily will be the difference between the
market value of the defaulted security and the market value of similar
securities which are not in default. In certain circumstances, however, the
Investment Adviser may determine that an alternative value for the insurance,
such as the difference between the market value of the defaulted security and
its par value, is more appropriate. The Investment Adviser will be unable to
manage the portfolio to the extent it holds defaulted securities, which may
limit its ability in certain circumstances to purchase other Florida Municipal
Bonds and Municipal Bonds. See "Net Asset Value" in the statement of additional
information for a more complete description of the Fund's method of valuing
defaulted securities and securities that have a significant risk of default.
There can be no assurance that insurance with the terms and issued by
insurance carriers meeting the criteria described above will continue to be
available to the Fund. In the event the Board of Trustees determines that such
insurance is unavailable or that the cost of such insurance outweighs the
benefits to the Fund, the Fund may modify the criteria for insurance carriers or
the terms of the insurance, or may discontinue its policy of maintaining
insurance for all or any of the Florida Municipal Bonds and Municipal Bonds held
in the Fund's portfolio. Although the Investment Adviser periodically reviews
the financial condition of each insurer, there can be no assurance that the
insurers will be able to honor their obligations under the circumstances.
The portfolio insurance reduces financial or credit risk (i.e., the
possibility that the owners of the insured Florida Municipal Bonds or Municipal
Bonds will not receive timely scheduled payments of principal or interest).
However, the insured Florida Municipal Bonds or Municipal Bonds are subject to
market risk (i.e., fluctuations in market value as a result of changes in
prevailing interest rates or other market conditions).
SPECIAL CONSIDERATIONS RELATING TO FLORIDA MUNICIPAL BONDS
The Fund ordinarily will invest at least 80% of its total assets in Florida
Municipal Bonds, and therefore it is more susceptible to factors adversely
affecting issuers of Florida Municipal Bonds than is a municipal bond mutual
fund that is not concentrated in issuers of Florida Municipal Bonds to this
degree. Many different social, environmental and economic factors may affect the
financial condition of Florida and its political subdivisions. From time to time
Florida and its political subdivisions have encountered financial difficulties.
Florida is highly dependent upon sales and uses taxes, which account for the
majority of its General Fund revenues. The Florida Constitution does not permit
a state or local personal income tax. The structure of personal income in
Florida is also different from the rest of the nation in that the State has a
proportionally greater retirement age population that is dependent upon transfer
payments (social security, pension benefits, etc.). Such transfer payments can
be affected by Federal legislation. Florida's economic growth is also highly
dependent upon other factors such as changes in population growth, tourism,
interest rates and hurricane activity. In combination, two amendments to the
Florida Constitution may limit the State's ability to raise revenues and may
have an adverse effect on the finances of Florida and its political
subdivisions. The Investment Adviser does not believe that the current economic
conditions in Florida will have a significant adverse effect on the Fund's
ability to invest in investment grade Florida Municipal Bonds. As of December 2,
1998, the State had a high bond rating from Moody's
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Investors Service, Inc. (Aa2), Standard & Poor's (AA+) and Fitch IBCA, Inc. (AA)
on all of its general obligation bonds. For a discussion of economic and other
conditions in the State of Florida, see Appendix A, "Economic and Other
Conditions in Florida" to the statement of additional information.
OTHER INVESTMENT POLICIES
The Fund has adopted certain other policies as set forth below:
Borrowings. The Fund is authorized to borrow money in amounts of up to 5%
of the value of its total assets at the time of such borrowings; provided,
however, that the Fund is authorized to borrow moneys in amounts of up to
33 1/3% of the value of its total assets at the time of such borrowings to
finance the repurchase of its own common shares pursuant to tender offers or
otherwise to redeem or repurchase preferred shares or for temporary,
extraordinary or emergency purposes. Borrowings by the Fund (commonly known, as
with the issuance of preferred shares, as "leveraging") create an opportunity
for greater total return since the Fund will not be required to sell portfolio
securities to repurchase or redeem shares but, at the same time, increase
exposure to capital risk. In addition, borrowed funds are subject to interest
costs that may offset or exceed the return earned on the borrowed funds.
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase or sell Florida Municipal Bonds and Municipal Bonds on a delayed
delivery basis or on a when-issued basis at fixed purchase or sale terms. These
transactions arise when securities are purchased or sold by the Fund with
payment and delivery taking place in the future. The purchase will be recorded
on the date the Fund enters into the commitment, and the value of the obligation
will thereafter be reflected in the calculation of the Fund's net asset value.
The value of the obligation on the delivery day may be more or less than its
purchase price. A separate account of the Fund will be established with its
custodian consisting of cash, cash equivalents or liquid securities having a
market value at all times at least equal to the amount of the commitment.
Indexed and Inverse Floating Obligations. The Fund may invest in Florida
Municipal Bonds and Municipal Bonds yielding a return based on a particular
index of value or interest rates. For example, the Fund may invest in Florida
Municipal Bonds and Municipal Bonds that pay interest based on an index of
Municipal Bond interest rates. The principal amount payable upon maturity of
certain Florida Municipal Bonds and Municipal Bonds also may be based on the
value of an index. To the extent the Fund invests in these types of Municipal
Bonds, the Fund's return on such Florida Municipal Bonds and Municipal Bonds
will be subject to risk with respect to the value of the particular index. Also,
the Fund may invest in so-called "inverse floating obligations" or "residual
interest bonds" on which the interest rates typically vary inversely with a
short-term floating rate (which may be reset periodically by a dutch auction, a
remarketing agent, or by reference to a short-term tax-exempt interest rate
index). The Fund may purchase in the secondary market synthetically-created
inverse floating rate bonds evidenced by custodial or trust receipts. Generally,
income on inverse floating rate bonds will decrease when short-term interest
rates increase, and will increase when short-term interest rates decrease. Such
securities have the effect of providing a degree of investment leverage, since
they may increase or decrease in value in response to changes, as an
illustration, in market interest rates at a rate that is a multiple (typically
two) of the rate at which
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<PAGE> 16
fixed-rate, long-term, tax-exempt securities increase or decrease in response to
such changes. As a result, the market values of such securities generally will
be more volatile than the market values of fixed-rate tax-exempt securities. To
seek to limit the volatility of these securities, the Fund may purchase inverse
floating obligations with shorter-term maturities or limitations on the extent
to which the interest rate may vary. The Investment Adviser believes that
indexed and inverse floating obligations represent a flexible portfolio
management instrument for the Fund that allows the Investment Adviser to vary
the degree of investment leverage relatively efficiently under different market
conditions.
Call Rights. The Fund may purchase a Florida Municipal Bond or Municipal
Bond issuer's right to call all or a portion of such Florida Municipal Bond or
Municipal Bond for mandatory tender for purchase (a "Call Right"). A holder of a
Call Right may exercise such right to require a mandatory tender for the
purchase of related Florida Municipal Bonds or Municipal Bonds, subject to
certain conditions. A Call Right that is not exercised prior to the maturity of
the related Florida Municipal Bond or Municipal Bond will expire without value.
The economic effect of holding both the Call Right and the related Florida
Municipal Bond or Municipal Bond is identical to holding a Florida Municipal
Bond or Municipal Bond as a non-callable security.
Repurchase Agreements. The Fund may invest in Florida Municipal Bonds,
Municipal Bonds and U.S. Government securities pursuant to repurchase
agreements. Repurchase agreements may be entered into only with a member bank of
the Federal Reserve System or a primary dealer in U.S. Government securities or
an affiliate thereof. Under such agreements, the seller agrees, upon entering
into the contract, to repurchase the security at a mutually agreed-upon time and
price, thereby determining the yield during the term of the agreement. The Fund
may not invest in repurchase agreements maturing in more than seven days if such
investments, together with all other illiquid investments, would exceed 15% of
the Fund's net assets. In the event of default by the seller under a repurchase
agreement, the Fund may suffer time delays and incur costs or possible losses in
connection with the disposition of the underlying securities.
In general, for Federal income tax purposes, repurchase agreements are
treated as collateralized loans secured by the securities "sold." Therefore,
amounts earned under such agreements will not be considered tax-exempt
securities.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may hedge all or a portion of its portfolio investments against
fluctuations in interest rates through the use of options and certain financial
futures contracts and options thereon. While the Fund's use of hedging
strategies is intended to reduce the volatility of the net asset value of the
common shares, the net asset value of the common shares will fluctuate. There
can be no assurance that the Fund's hedging transactions will be effective. For
so long as the AMPS are rated by Moody's and S&P, the Fund's use of options and
financial futures contracts will be subject to the limitations described under
"Rating Agency Guidelines" herein and in the statement of additional
information. Furthermore, the Fund may only engage in hedging activities from
time to time and may not necessarily be engaging in hedging activities when
movements in interest rates occur. The Fund has no obligation to enter into
hedging transactions and may choose not to do so.
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<PAGE> 17
Certain Federal income tax requirements may limit the Fund's ability to
engage in hedging transactions. Gains from transactions in options and futures
contracts distributed to shareholders will be taxable as ordinary income or, in
certain circumstances, as long-term capital gains to shareholders. See
"Taxes -- Tax Treatment of Options and Futures Transactions" in the statement of
additional information. In addition, in order to obtain ratings of the preferred
shares from one or more nationally recognized statistical rating organizations
("NRSROs"), the Fund may be required to limit its use of hedging techniques in
accordance with the specified guidelines of such rating organizations.
For a description of the options and futures transactions in which the Fund
may engage, limitations on the Fund's use of such transactions and risks
associated with these transactions, see "Investment Objective and
Policies -- Options and Futures Transactions" in the statement of additional
information. The investment policies with respect to the hedging transactions of
the Fund are not fundamental policies and may be modified by the Board of
Trustees of the Fund without the approval of the Fund's shareholders.
DESCRIPTION OF AMPS
GENERAL
Certain of the capitalized terms used herein are defined in the Glossary
that appears at the back of this prospectus.
The AMPS will be preferred shares that entitle their holders to receive
dividends when, as and if declared by the Board of Trustees, out of funds
legally available therefor, at a rate per annum that may vary for the successive
Dividend Periods. After the Initial Dividend Period, each Subsequent Dividend
Period for the AMPS generally will be a 7-Day Dividend Period; provided,
however, that prior to any Auction, the Fund may elect, subject to certain
limitations described herein, upon giving notice to holders thereof, a Special
Dividend Period. The Applicable Rate for a particular Dividend Period will be
determined by an Auction conducted on the Business Day before the start of such
Dividend Period. Beneficial Owners and Potential Beneficial Owners of AMPS may
participate in Auctions therefor, although, except in the case of a Special
Dividend Period, Beneficial Owners desiring to continue to hold all of their
AMPS regardless of the Applicable Rate resulting from Auctions need not
participate. For an explanation of Auctions and the method of determining the
Applicable Rate, see "The Auction" herein and in the statement of additional
information.
The following is a brief description of the terms of the AMPS. This
description does not purport to be complete and is subject to and qualified in
its entirety by reference to the Fund's Declaration of Trust and Certificate of
Designation, including the provisions thereof establishing the AMPS. The Fund's
Declaration of Trust and the form of Certificate of Designation establishing the
terms of the AMPS have been filed as exhibits to the Registration Statement of
which this prospectus is a part.
DIVIDENDS
General. The holders of shares of AMPS will be entitled to receive, when,
as and if declared by the Board of Trustees of the Fund, out of funds legally
available therefor, cumulative cash
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dividends on their shares, at the Applicable Rate determined as set forth below
under "Determination of Dividend Rate," payable on the respective dates set
forth below. Dividends on the AMPS so declared and payable shall be paid (i) in
preference to and in priority over any dividends so declared and payable on the
Common Shares, and (ii) to the extent permitted under the Code and to the extent
available, out of net tax-exempt income earned on the Fund's investments.
Generally, dividends on AMPS, to the extent that they are derived from interest
paid on Municipal Bonds, will be exempt from Federal income taxes, subject to
possible application of the alternative minimum tax. See "Taxes" in the
statement of additional information.
Dividends on the AMPS will accumulate from the date on which the Fund
originally issues the shares of AMPS (the "Date of Original Issue") and will be
payable on the dates described below. Dividends on shares of AMPS with respect
to the Initial Dividend Period shall be payable on the Initial Dividend Payment
Date. Following the Initial Dividend Payment Date for the AMPS, dividends on the
AMPS will be payable, at the option of the Fund, either (i) with respect to any
7-Day Dividend Period and any Short Term Dividend Period of 35 or fewer days, on
the day next succeeding the last day thereof or (ii) with respect to any Short
Term Dividend Period of more than 35 days and with respect to any Long Term
Dividend Period, monthly on the first Business Day of each calendar month during
such Short Term Dividend Period or Long Term Dividend Period and on the day next
succeeding the last day thereof (each such date referred to in clause (i) or
(ii) being referred to herein as a "Normal Dividend Payment Date"), except that
if such Normal Dividend Payment Date is not a Business Day, the Dividend Payment
Date shall be the first Business Day next succeeding such Normal Dividend
Payment Date. Thus, following the Initial Dividend Payment Date for the AMPS,
dividends generally will be payable (in the case of Dividend Periods which are
not Special Dividend Periods) on each succeeding Wednesday. Although any
particular Dividend Payment Date may not occur on the originally scheduled date
because of the exceptions discussed above, the next succeeding Dividend Payment
Date, subject to such exceptions, will occur on the next following originally
scheduled date. If for any reason a Dividend Payment Date cannot be fixed as
described above, then the Board of Trustees shall fix the Dividend Payment Date.
The Board of Trustees by resolution prior to authorization of a dividend by the
Board of Trustees may change a Dividend Payment Date if such change does not
adversely affect the contract rights of the holders of AMPS set forth in the
Declaration of Trust. The Initial Dividend Period, 7-Day Dividend Periods and
Special Dividend Periods are hereinafter sometimes referred to as "Dividend
Periods." Each dividend payment date determined as provided above is hereinafter
referred to as a "Dividend Payment Date."
Prior to each Dividend Payment Date, the Fund is required to deposit with
the Auction Agent sufficient funds for the payment of declared dividends. The
Fund does not intend to establish any reserves for the payment of dividends.
Each dividend will be paid to the record holder of the AMPS, which holder
is expected to be the nominee of the Securities Depository. See "The
Auction -- Securities Depository." The Securities Depository will credit the
accounts of the Agent Members of the Existing Holders in accordance with the
Securities Depository's normal procedures which provide for payment in same-day
funds. The Agent Member of an Existing Holder will be responsible for holding or
disbursing such payments on the applicable Dividend Payment Date to such
Existing Holder in accordance with
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the instructions of such Existing Holder. Dividends in arrears for any past
Dividend Period may be declared and paid at any time, without reference to any
regular Dividend Payment Date, to the nominee of the Securities Depository. Any
dividend payment made on AMPS first shall be credited against the earliest
declared but unpaid dividends accumulated with respect to such AMPS.
Holders of AMPS will not be entitled to any dividends, whether payable in
cash, property or stock, in excess of full cumulative dividends except as
described under "Additional Dividends" and "Non-Payment Period; Late Charge." No
interest will be payable in respect of any dividend payment or payments on the
shares of AMPS which may be in arrears.
The amount of cash dividends per share of AMPS payable (if declared) on the
Initial Dividend Payment Date, each Dividend Payment Date of each 7-Day Dividend
Period and each Dividend Payment Date of each Short Term Dividend Period shall
be computed by multiplying the Applicable Rate for such Dividend Period by a
fraction, the numerator of which will be the number of days in such Dividend
Period or part thereof that such share was outstanding and for which dividends
are payable on such Dividend Payment Date and the denominator of which will be
365, multiplying the amount so obtained by $25,000, and rounding the amount so
obtained to the nearest cent. During any Long Term Dividend Period, the amount
of cash dividends per share of AMPS payable (if declared) on any Dividend
Payment Date shall be computed by multiplying the Applicable Rate for such
Dividend Period by a fraction, the numerator of which will be such number of
days in such part of such Dividend Period that such share was outstanding and
for which dividends are payable on such Dividend Payment Date and the
denominator of which will be 360, multiplying the amount so obtained by $25,000,
and rounding the amount so obtained to the nearest cent.
Notification of Dividend Period. With respect to each Dividend Period that
is a Special Dividend Period, the Fund, at its sole option and to the extent
permitted by law, by telephonic and written notice (a "Request for Special
Dividend Period") to the Auction Agent and to each Broker-Dealer, may request
that the next succeeding Dividend Period for the AMPS will be a number of days
(other than seven), evenly divisible by seven, and not fewer than seven nor more
than 364 in the case of a Short Term Dividend Period or one whole year or more
but not greater than five years in the case of a Long Term Dividend Period,
specified in such notice, provided that the Fund may not give a Request for
Special Dividend Period (and any such request shall be null and void) unless,
for any Auction occurring after the initial Auction, Sufficient Clearing Bids
were made in the last occurring Auction and unless full cumulative dividends,
any amounts due with respect to redemptions, and any Additional Dividends
payable prior to such date have been paid in full. Such Request for Special
Dividend Period, in the case of a Short Term Dividend Period, shall be given on
or prior to the second Business Day but not more than seven Business Days prior
to an Auction Date for the AMPS and, in the case of a Long Term Dividend Period,
shall be given on or prior to the second Business Day but not more than 28 days
prior to an Auction Date for the AMPS. Upon receiving such Request for Special
Dividend Period, the Broker-Dealers jointly shall determine whether, given the
factors set forth below, it is advisable that the Fund issue a Notice of Special
Dividend Period for a series of AMPS as contemplated by such Request for Special
Dividend Period and the Optional Redemption Price of the AMPS during such
Special Dividend Period and the Specific Redemption Provisions and shall give
the Fund and the Auction Agent written notice (a "Response") of such
determination by no later than the second Business Day prior to such Auction
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<PAGE> 20
Date. In the event the Response indicates that it is advisable that the Fund
give a notice of a Special Dividend Period for the AMPS, the Fund, by no later
than the second Business Day prior to such Auction Date may give a notice (a
"Notice of Special Dividend Period") to the Auction Agent, the Securities
Depository and each Broker-Dealer. See "Description of
AMPS -- Dividends -- Notification of Dividend Period" in the statement of
additional information for a detailed description of these procedures.
Determination of Dividend Rate. The dividend rate on shares of AMPS during
the period from and including the Date of Original Issue to but excluding the
Initial Dividend Payment Date (the "Initial Dividend Period") will be the rate
per annum set forth above under "Offering Summary." Commencing on the Initial
Dividend Payment Date for AMPS, the Applicable Rate on the shares of such series
of AMPS for each Subsequent Dividend Period, which Subsequent Dividend Period
shall be a period commencing on and including a Dividend Payment Date and ending
on and including the calendar day prior to the next Dividend Payment Date (or
last Dividend Payment Date in a Dividend Period if there is more than one
Dividend Payment Date), shall be equal to the rate per annum that results from
the Auction with respect to such Subsequent Dividend Period. The Initial
Dividend Period and Subsequent Dividend Period for AMPS is referred to herein as
a "Dividend Period." Cash dividends shall be calculated as set forth above under
"Dividends -- General."
Restrictions on Dividends and Other Payments. Under the 1940 Act, the Fund
may not declare dividends or make other distributions on Common Shares or
purchase any such shares if, at the time of the declaration, distribution or
purchase, as applicable (and after giving effect thereto), asset coverage (as
defined in the 1940 Act) with respect to the outstanding AMPS would be less than
200% (or such other percentage as in the future may be required by law). The
Fund estimates that, based on the composition of its portfolio at July 23, 1999,
asset coverage with respect to AMPS would be approximately 249% immediately
after the issuance of the AMPS offered hereby. Under the Code, the Fund, among
other things, must distribute at least 90% of its investment company taxable
income each year in order to maintain its qualification for tax treatment as a
regulated investment company. The foregoing limitations on dividends,
distributions and purchases under certain circumstances may impair the Fund's
ability to maintain such qualification. See "Taxes" in the statement of
additional information.
Upon any failure to pay dividends on AMPS for two years or more, the
holders of the AMPS will acquire certain additional voting rights. See "Voting
Rights" below. Such rights shall be the exclusive remedy of the holders of AMPS
upon any failure to pay dividends on shares of the Fund.
Additional Dividends. If the Fund retroactively allocates any net capital
gains or other income subject to regular Federal income taxes to shares of AMPS
without having given advance notice thereof to the Auction Agent as described
under "The Auction -- Auction Date; Advance Notice of Allocation of Taxable
Income; Inclusion of Taxable Income in Dividends" below, which may only happen
when such allocation is made as a result of the redemption of all or a portion
of the outstanding AMPS or the liquidation of the Fund (the amount of such
allocation referred to herein as a "Retroactive Taxable Allocation"), the Fund,
within 90 days (and generally within 60 days) after the end of the Fund's fiscal
year for which a Retroactive Taxable Allocation is made, will provide notice
thereof to the Auction Agent and to each holder of shares (initially Cede as
nominee of the Securities Depository) during such fiscal year at such holder's
address as the same appears or
19
<PAGE> 21
last appeared on the stock books of the Fund. The Fund, within 30 days after
such notice is given to the Auction Agent, will pay to the Auction Agent (who
then will distribute to such holders of AMPS), out of funds legally available
therefor, an amount equal to the aggregate Additional Dividend (as defined
below) with respect to all Retroactive Taxable Allocations made to such holders
during the fiscal year in question. See "Taxes" in the statement of additional
information.
An "Additional Dividend" means payment to a present or former holder of
shares of AMPS of an amount which, when taken together with the aggregate amount
of Retroactive Taxable Allocations made to such holder with respect to the
fiscal year in question, would cause such holder's dividends in dollars (after
Federal income tax consequences) from the aggregate of both the Retroactive
Taxable Allocations and the Additional Dividend to be equal to the dollar amount
of the dividends which would have been received by such holder if the amount of
the aggregate Retroactive Taxable Allocations had been excludable from the gross
income of such holder. Such Additional Dividend shall be calculated (i) without
consideration being given to the time value of money; (ii) assuming that no
holder of AMPS is subject to the Federal alternative minimum tax with respect to
dividends received from the Fund; and (iii) assuming that each Retroactive
Taxable Allocation would be taxable in the hands of each holder of AMPS at the
greater of: (a) the maximum combined marginal regular Federal individual income
tax rate applicable to ordinary income or capital gains depending on the taxable
character of the distribution (including any surtax); or (b) the maximum
combined marginal regular Federal and Florida corporate income tax rate
applicable to ordinary income or capital gains depending on the taxable
character of the distribution (taking into account in both (a) and (b) the
Federal income tax deductibility of state taxes paid or incurred but not any
phase out of, or provision limiting, personal exemptions, itemized deductions,
or the benefit of lower tax brackets and assuming the taxability of Federally
tax-exempt dividends to corporations for Florida state franchise tax purposes).
Although the Fund generally intends to designate any Additional Dividend as an
exempt-interest dividend to the extent permitted by applicable law, it is
possible that all or a portion of any Additional Dividend will be taxable to the
recipient thereof. See "Taxes -- Tax Treatment of Additional Dividends" in the
statement of additional information. The Fund will not pay a further Additional
Dividend with respect to any taxable portion of an Additional Dividend.
If the Fund does not give advance notice of the amount of taxable income to
be included in a dividend on AMPS in the related Auction, the Fund may include
such taxable income in a dividend on shares of AMPS if it increases the dividend
by an additional amount calculated as if such income were a Retroactive Taxable
Allocation and the additional amount were an Additional Dividend and notifies
the Auction Agent of such inclusion at least five days prior to the applicable
Dividend Payment Date. See "The Auction -- Auction Procedures -- Auction Date;
Advance Notice of Allocation of Taxable Income; Inclusion of Taxable Income in
Dividends" below.
ASSET MAINTENANCE
The Fund will be required to satisfy two separate asset maintenance
requirements under the terms of the Certificate of Designation. These
requirements are summarized below.
1940 Act AMPS Asset Coverage. The Fund will be required under the
Certificate of Designation to maintain, with respect to AMPS, as of the last
Business Day of each month in which
20
<PAGE> 22
any AMPS are outstanding, asset coverage of at least 200% with respect to senior
securities which are stock, including the AMPS (or such other asset coverage as
in the future may be specified in or under the 1940 Act as the minimum asset
coverage for senior securities which are stock of a closed-end investment
company as a condition of paying dividends on its common stock) ("1940 Act AMPS
Asset Coverage"). If the Fund fails to maintain 1940 Act AMPS Asset Coverage and
such failure is not cured as of the last Business Day of the following month
(the "1940 Act Cure Date"), the Fund will be required under certain
circumstances to redeem certain of the AMPS. See "Redemption" below.
The 1940 Act AMPS Asset Coverage immediately following the issuance of AMPS
offered hereby (after giving effect to the deduction of the sales load and
offering expenses for the AMPS) will be computed as follows:
<TABLE>
<S> <C> <C> <C> <C>
Value of Fund assets less
liabilities not constituting
senior securities = $87,073,084 = 249%
- ----------------------------- ------------
Senior securities $35,000,000
representing indebtedness
plus liquidation value of the
AMPS
</TABLE>
AMPS Basic Maintenance Amount. So long as AMPS are outstanding, the Fund
will be required under the Certificate of Designation to maintain as of each
Business Day (a "Valuation Date") S&P Eligible Assets and Moody's Eligible
Assets each having in the aggregate a Discounted Value at least equal to the
AMPS Basic Maintenance Amount. The AMPS Basic Maintenance Amount includes the
sum of (i) the aggregate liquidation value of AMPS then outstanding and (ii)
certain accrued and projected payment obligations of the Fund. See "Description
of AMPS -- Asset Maintenance -- AMPS Basic Maintenance Amount" in the statement
of additional information. If the Fund fails to meet such requirement as of any
Valuation Date and such failure is not cured on or before the sixth Business Day
after such Valuation Date (the "AMPS Basic Maintenance Cure Date"), the Fund
will be required under certain circumstances to redeem certain of the AMPS. Upon
any failure to maintain the required Discounted Value, the Fund will use its
best efforts to alter the composition of its portfolio to reattain a Discounted
Value at least equal to the AMPS Basic Maintenance Amount on or prior to the
AMPS Basic Maintenance Cure Date. See "Redemption" herein and in the statement
of additional information.
REDEMPTION
Optional Redemption. To the extent permitted under the 1940 Act and under
Maryland law, upon giving a Notice of Redemption, as provided in the statement
of additional information, the Fund, at its option, may redeem AMPS, in whole or
in part, out of funds legally available therefor, at the Optional Redemption
Price per share on any Dividend Payment Date; provided that no share of AMPS may
be redeemed at the option of the Fund during (a) the Initial Dividend Period
with respect to the AMPS or (b) a Non-Call Period to which such share is
subject. "Optional Redemption Price" means $25,000 per share of AMPS plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) to the date fixed for redemption plus any
21
<PAGE> 23
applicable redemption premium, if any, attributable to the designation of a
Premium Call Period. In addition, holders of AMPS may be entitled to receive
Additional Dividends in the event of redemption of such AMPS to the extent
provided herein. See "Dividends -- Additional Dividends" above. The Fund has the
authority to redeem the AMPS for any reason and may redeem all or part of the
outstanding AMPS if it anticipates that the Fund's leveraged capital structure
will result in a lower rate of return to holders of common shares for any
significant period of time than that obtainable if the common shares were
unleveraged.
Mandatory Redemption. The Fund will be required to redeem, out of funds
legally available therefor, at the Mandatory Redemption Price per share, AMPS to
the extent permitted under the 1940 Act and Maryland law, on a date fixed by the
Board of Trustees, if the Fund fails to maintain S&P Eligible Assets and Moody's
Eligible Assets each with an aggregate Discounted Value equal to or greater than
the AMPS Basic Maintenance Amount or to satisfy the 1940 Act AMPS Asset Coverage
and such failure is not cured on or before the AMPS Basic Maintenance Cure Date
or the 1940 Act Cure Date (herein collectively referred to as a "Cure Date"), as
the case may be. "Mandatory Redemption Price" means $25,000 per share of AMPS
plus an amount equal to accumulated but unpaid dividends (whether or not earned
or declared) to the date fixed for redemption. In addition, holders of AMPS may
be entitled to receive Additional Dividends in the event of redemption of such
AMPS to the extent provided herein. See "Dividends -- Additional Dividends"
above.
For a discussion of the allocation procedures to be used if fewer than all
of the outstanding AMPS of either series are to be redeemed and for a discussion
of other redemption procedures, see "Description of AMPS -- Redemption" in the
statement of additional information.
LIQUIDATION RIGHTS
Upon any liquidation, dissolution or winding up of the Fund, whether
voluntary or involuntary, the holders of AMPS will be entitled to receive, out
of the assets of the Fund available for distribution to shareholders, before any
distribution or payment is made upon any common shares or any other capital
shares of the Fund ranking junior in right of payment upon liquidation of AMPS,
$25,000 per share together with the amount of any dividends accumulated but
unpaid (whether or not earned or declared) thereon to the date of distribution,
and after such payment the holders of AMPS will be entitled to no other payments
except for any Additional Dividends. If such assets of the Fund shall be
insufficient to make the full liquidation payment on the outstanding AMPS and
liquidation payments on any other outstanding class or series of preferred
shares of the Fund ranking on a parity with the AMPS as to payment upon
liquidation, then such assets will be distributed among the holders of AMPS and
the holders of such other class or series ratably in proportion to the
respective preferential amounts to which they are entitled. After payment of the
full amount of liquidation distribution to which they are entitled, the holders
of AMPS will not be entitled to any further participation in any distribution of
assets by the Fund except for any Additional Dividends. A consolidation, merger
or share exchange of the Fund with or into any other entity or entities or a
sale, whether for cash, shares of stock, securities or properties, of all or
substantially all or any part of the assets of the Fund shall not be deemed or
construed to be a liquidation, dissolution or winding up of the Fund.
22
<PAGE> 24
VOTING RIGHTS
Except as otherwise indicated in this prospectus and the statement of
additional information and except as otherwise required by applicable law,
holders of AMPS will be entitled to one vote per share on each matter submitted
to a vote of shareholders and will vote together with holders of common shares
as a single class.
The 1940 Act and the Certificate of Designation require that the holders of
preferred shares, including the AMPS, voting as a separate class, have the
rights to elect two of the Fund's Trustees at all times and to elect a majority
of the Trustees at any time that two full years' dividends on the AMPS are
unpaid. The holders of AMPS will vote as a separate class or classes on certain
other matters as required under the Certificate of Designation, the 1940 Act and
Maryland law. See "Description of AMPS -- Voting Rights" in the statement of
additional information.
THE AUCTION
GENERAL
Holders of the AMPS will be entitled to receive cumulative cash dividends
on their shares when, as and if declared by the Board of Trustees of the Fund,
out of funds legally available therefor, on the Initial Dividend Payment Date
with respect to the Initial Dividend Period and, thereafter, on each Dividend
Payment Date with respect to a Subsequent Dividend Period (generally a period of
seven days subject to certain exceptions set forth under "Description of AMPS --
Dividends -- General") at the rate per annum equal to the Applicable Rate for
each such Dividend Period.
The provisions of the Certificate of Designation establishing the terms of
the AMPS offered hereby will provide that the Applicable Rate for the AMPS for
each Dividend Period after the Initial Dividend Period therefor will be equal to
the rate per annum that the Auction Agent advises has resulted on the Business
Day preceding the first day of such Dividend Period due to implementation of the
auction procedures set forth in the Certificate of Designation (the "Auction
Procedures") in which persons determine to hold or offer to purchase or sell
AMPS. The Auction Procedures are attached as Appendix E to the statement of
additional information.
Each periodic operation of such procedures with respect to the AMPS is
referred to hereinafter as an "Auction." If, however, the Fund should fail to
pay or duly provide for the full amount of any dividend on AMPS or the
redemption price of AMPS called for redemption, the Applicable Rate for AMPS
will be determined as set forth under "Description of
AMPS -- Dividends -- Non-Payment Period; Late Charge" in the statement of
additional information.
Auction Agent Agreement. The Fund will enter into an agreement (the
"Auction Agent Agreement") with IBJ Whitehall Bank & Trust Company (together
with any successor bank or trust company or other entity entering into a similar
agreement with this Fund, the "Auction Agent"), which provides, among other
things, that the Auction Agent will follow the Auction Procedures for the
purpose of determining the Applicable Rate for the AMPS. The Fund will pay the
Auction Agent compensation for its services under the Auction Agent Agreement.
23
<PAGE> 25
Broker-Dealer Agreements. The Auction Agent will enter into agreements
with Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Goldman, Sachs & Co., Lehman Government Securities Incorporated and Salomon
Smith Barney Inc. and may enter into similar agreements (collectively, the
"Broker-Dealer Agreements") with one or more other broker-dealers (collectively,
the "Broker-Dealers") selected by the Fund, which provide for the participation
of such Broker-Dealers in Auctions. Merrill Lynch is an affiliate of the
Investment Adviser in that they share a common parent, ML & Co.
Securities Depository. The Depository Trust Company initially will act as
the Securities Depository for the Agent Members with respect to the AMPS. One or
more registered certificates for all of the AMPS initially will be registered in
the name of Cede, as nominee of the Securities Depository. The certificate will
bear a legend to the effect that such certificate is issued subject to the
provisions restricting transfers of AMPS contained in the Certificate of
Designation. Cede initially will be the holder of record of all AMPS, and
Beneficial Owners will not be entitled to receive certificates representing
their ownership interest in such shares. The Securities Depository will maintain
lists of its participants and will maintain the positions (ownership interests)
of AMPS held by each Agent Member, whether as the Beneficial Owner thereof for
its own account or as nominee for the Beneficial Owner thereof. Payments made by
the Fund to holders of AMPS will be duly made by making payments to the nominee
of the Securities Depository.
AUCTION PROCEDURES
The following is a brief discussion of the procedures to be used in
conducting Auctions. This summary is qualified by reference to the Auction
Procedures set forth in Appendix E to the statement of additional information.
The Settlement Procedures to be used with respect to Auctions are set forth in
Appendix D to the statement of additional information.
Auction Date; Advance Notice of Allocation of Taxable Income; Inclusion of
Taxable Income in Dividends. An Auction to determine the Applicable Rate for
the AMPS offered hereby for each Dividend Period (other than the Initial
Dividend Period therefor) will be held on the first Business Day (as hereinafter
defined) preceding the first day of such Dividend Period, which first day is
also the Dividend Payment Date for the preceding Dividend Period (the date of
each Auction being referred to herein as an "Auction Date"). "Business Day"
means a day on which the New York Stock Exchange is open for trading and which
is not a Saturday, Sunday or other day on which banks in the City of New York
are authorized or obligated by law to close. Auctions for the AMPS for Dividend
Periods after the Initial Dividend Period normally will be held every Tuesday
after the preceding Dividend Payment Date, and each subsequent Dividend Period
normally will begin on the following Wednesday (also a Dividend Payment Date).
The Auction Date and the first day of the related Dividend Period (both of which
must be Business Days) need not be consecutive calendar days. For example, in
most cases, if the Tuesday that normally would be an Auction Date for the AMPS
is not a Business Day, then such Auction Date will be the preceding Monday and
the first day of the related Dividend Period will continue to be the following
Wednesday. See "Description of AMPS -- Dividends" for information concerning the
circumstances under which a Dividend Payment Date may fall on a date other than
the days specified above, which may affect the Auction Date.
24
<PAGE> 26
Except as noted below, whenever the Fund intends to include any net capital
gains or other income subject to regular Federal income taxes in any dividend on
AMPS, the Fund will notify the Auction Agent of the amount to be so included at
least five Business Days prior to the Auction Date on which the Applicable Rate
for such dividend is to be established. Whenever the Auction Agent receives such
notice from the Fund, in turn it will notify each Broker-Dealer, who, on or
prior to such Auction Date, in accordance with its Broker-Dealer Agreement, will
notify its customers who are Beneficial Owners and Potential Beneficial Owners
believed to be interested in submitting an Order in the Auction to be held on
such Auction Date. The Fund also may include such income in a dividend on AMPS
without giving advance notice thereof if it increases the dividend by an
additional amount calculated as if such income were a Retroactive Taxable
Allocation and the additional amount were an Additional Dividend; provided that
the Fund will notify the Auction Agent of the additional amounts to be included
in such dividend at least five Business Days prior to the applicable Dividend
Payment Date. See "Description of AMPS -- Dividends -- Additional Dividends"
above.
Orders by Beneficial Owners, Potential Beneficial Owners, Existing Holders
and Potential Holders. On or prior to each Auction Date:
(a) each Beneficial Owner may submit to its Broker-Dealer by telephone
a:
(i) Hold Order -- indicating the number of outstanding AMPS, if
any, that such Beneficial Owner desires to continue to hold without
regard to the Applicable Rate for the next Dividend Period for such
shares;
(ii) Bid -- indicating the number of outstanding AMPS, if any, that
such Beneficial Owner desires to continue to hold, provided that the
Applicable Rate for the next Dividend Period for such shares is not less
than the rate per annum then specified by such Beneficial Owner; and/or
(iii) Sell Order -- indicating the number of outstanding AMPS, if
any, that such Beneficial Owner offers to sell without regard to the
Applicable Rate for the next Dividend Period for such shares; and
(b) Broker-Dealers will contact customers who are Potential Beneficial
Owners of AMPS to determine whether such Potential Beneficial Owners desire
to submit Bids indicating the number of AMPS which they offer to purchase
provided that the Applicable Rate for the next Dividend Period for such
shares is not less than the rates per annum specified in such Bids.
The communication by a Beneficial Owner or Potential Beneficial Owner to a
Broker-Dealer and the communication by a Broker-Dealer, whether or not acting
for its own account, to the Auction Agent of the foregoing information is
hereinafter referred to as an "Order" and collectively as "Orders." A Beneficial
Owner or a Potential Beneficial Owner placing an Order, including a
Broker-Dealer acting in such capacity for its own account, is hereinafter
referred to as a "Bidder" and collectively as "Bidders." Any Order submitted by
a Beneficial Owner or a Potential Beneficial Owner to its Broker-Dealer, or by a
Broker-Dealer to the Auction Agent, prior to the Submission Deadline on any
Auction Date shall be irrevocable.
In an Auction, a Beneficial Owner may submit different types of Orders with
respect to AMPS then held by such Beneficial Owner, as well as Bids for
additional AMPS. For information
25
<PAGE> 27
concerning the priority given to different types of Orders placed by Beneficial
Owners, see "Submission of Orders by Broker-Dealers to Auction Agent" below.
The Maximum Applicable Rate for AMPS will be the Applicable Percentage of
the Reference Rate. The Auction Agent will round each applicable Maximum
Applicable Rate to the nearest one-thousandth (0.001) of one percent per annum,
with any such number ending in five ten-thousandths of one percent being rounded
upwards to the nearest one-thousandth (0.001) of one percent. The Auction Agent
will not round the applicable Reference Rate as part of its calculation of the
Maximum Applicable Rate.
The Maximum Applicable Rate for AMPS will depend on the credit rating or
ratings assigned to such shares. The Applicable Percentage will be determined
based on (i) the lower of the credit rating or ratings assigned on such date to
such shares by Moody's and S&P (or if Moody's or S&P or both shall not make such
rating available, the equivalent of either or both of such ratings by a
Substitute Rating Agency or two Substitute Rating Agencies or, in the event that
only one such rating shall be available, such rating) and (ii) whether the Fund
has provided notification to the Auction Agent prior to the Auction establishing
the Applicable Rate for any dividend that net capital gains or other taxable
income will be included in such dividend on shares of AMPS as follows:
<TABLE>
<CAPTION>
CREDIT RATINGS
- ----------------------------------------- APPLICABLE APPLICABLE
REFERENCE RATE -- REFERENCE RATE -- PERCENTAGE OF PERCENTAGE OF
NO NOTIFICATION NOTIFICATION MOODY'S S&P
- --------------------- ----------------- ------------- -------------
<S> <C> <C> <C>
"aa3" or higher AA- or Higher 110% 150%
"a3" or "a1" A- to A 125% 160%
"baa3" to "baa1" BBB- to BBB+ 150% 250%
Below "baa3" Below BBB- 200% 275%
</TABLE>
There is no minimum Applicable Rate in respect of any Dividend Period.
The Fund will take all reasonable action necessary to enable S&P and
Moody's to provide a rating for the AMPS. If either S&P or Moody's, or both,
shall not make such a rating available, the Underwriter or its affiliates and
successors, after consultation with the Fund, will select another nationally
recognized statistical rating organization (a "Substitute Rating Agency") or two
other nationally recognized statistical rating organizations ("Substitute Rating
Agencies") to act as a Substitute Rating Agency or Substitute Rating Agencies,
as the case may be.
Any Bid by a Beneficial Owner specifying a rate per annum higher than the
Maximum Applicable Rate will be treated as a Sell Order, and any Bid by a
Potential Beneficial Owner specifying a rate per annum higher than the Maximum
Applicable Rate will not be considered. See "Determination of Sufficient
Clearing Bids, Winning Bid Rate and Applicable Rate" and "Acceptance and
Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares."
Neither the Fund nor the Auction Agent will be responsible for a
Broker-Dealer's failure to comply with the foregoing.
A Broker-Dealer also may hold AMPS in its own account as a Beneficial
Owner. A Broker-Dealer thus may submit Orders to the Auction Agent as a
Beneficial Owner or a Potential Beneficial
26
<PAGE> 28
Owner and therefore participate in an Auction as an Existing Holder or Potential
Holder on behalf of both itself and its customers. Any Order placed with the
Auction Agent by a Broker-Dealer as or on behalf of a Beneficial Owner or a
Potential Beneficial Owner will be treated in the same manner as an Order placed
with a Broker-Dealer by a Beneficial Owner or a Potential Beneficial Owner.
Similarly, any failure by a Broker-Dealer to submit to the Auction Agent an
Order in respect of any AMPS held by it or its customers who are Beneficial
Owners will be treated in the same manner as a Beneficial Owner's failure to
submit to its Broker-Dealer an Order in respect of AMPS held by it, as described
in the next paragraph. Inasmuch as a Broker-Dealer participates in an Auction as
an Existing Holder or a Potential Holder only to represent the interests of a
Beneficial Owner or Potential Beneficial Owner, whether it be its customers or
itself, all discussion herein relating to the consequences of an Auction for
Existing Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented thereby. For information concerning the priority
given to different types of Orders placed by Existing Holders, see "Submission
of Orders by Broker-Dealers to Auction Agent." Each purchase or sale in an
Auction will be settled on the Business Day next succeeding the Auction Date at
a price per share equal to $25,000. See "Notification of Results; Settlement"
below.
If one or more Orders covering in the aggregate all of the outstanding AMPS
held by a Beneficial Owner are not submitted to the Auction Agent prior to the
Submission Deadline, either because a Broker-Dealer failed to contact such
Beneficial Owner or otherwise, the Auction Agent shall deem a Hold Order (in the
case of an Auction relating to a Dividend Period which is not a Special Dividend
Period of 28 days or more) and a Sell Order (in the case of an Auction relating
to a Special Dividend Period of 28 days or more) to have been submitted on
behalf of such Beneficial Owner covering the number of outstanding AMPS held by
such Beneficial Owner and not subject to Orders submitted to the Auction Agent.
If all of the outstanding AMPS are subject to Submitted Hold Orders, the
Dividend Period next succeeding the Auction automatically shall be the same
length as the immediately preceding Dividend Period, and the Applicable Rate for
the next Dividend Period for all AMPS will be 40% of the Reference Rate on the
date of the applicable Auction (or 60% of such rate if the Fund has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend that net capital gains or other taxable income
will be included in such dividend on AMPS).
For the purposes of an Auction, AMPS for which the Fund shall have given
notice of redemption and deposited moneys therefor with the Auction Agent in
trust or segregated in an account at the Fund's custodian bank for the benefit
of the Auction Agent, as set forth under "Description of AMPS -- Redemption" in
the statement of additional information, will not be considered as outstanding
and will not be included in such Auction. Pursuant to the Certificate of
Designation of the Fund, the Fund will be prohibited from reissuing and its
affiliates (other than the Underwriter) will be prohibited from transferring
(other than to the Fund) any shares of AMPS they may acquire. Neither the Fund
nor any affiliate of the Fund (other than the Underwriter) may submit an Order
in any Auction, except that an affiliate of the Fund that is a Broker-Dealer may
submit an Order.
27
<PAGE> 29
Submission of Orders by Broker-Dealers to Auction Agent. Prior to 1:00
p.m., Eastern time, on each Auction Date, or such other time on the Auction Date
as may be specified by the Auction Agent (the "Submission Deadline"), each
Broker-Dealer will submit to the Auction Agent in writing all Orders obtained by
it for the Auction to be conducted on such Auction Date, designating itself
(unless otherwise permitted by the Fund) as the Existing Holder or Potential
Holder in respect of the AMPS subject to such Orders. Any Order submitted by a
Beneficial Owner or a Potential Beneficial Owner to its Broker-Dealer, or by a
Broker-Dealer to the Auction Agent, prior to the Submission Deadline on any
Auction Date, shall be irrevocable.
If the rate per annum specified in any Bid contains more than three figures
to the right of the decimal point, the Auction Agent will round such rate per
annum up to the next highest one-thousandth (.001) of 1%.
If one or more Orders of an Existing Holder are submitted to the Auction
Agent and such Orders cover in the aggregate more than the number of outstanding
AMPS held by such Existing Holder, such Orders will be considered valid in the
following order of priority:
(i) any Hold Order will be considered valid up to and including the
number of outstanding AMPS held by such Existing Holder, provided that if
more than one Hold Order is submitted by such Existing Holder and the
number of AMPS subject to such Hold Orders exceeds the number of
outstanding AMPS held by such Existing Holder, the number of AMPS subject
to each of such Hold Orders will be reduced pro rata so that such Hold
Orders, in the aggregate, will cover exactly the number of outstanding AMPS
held by such Existing Holder;
(ii) any Bids will be considered valid, in the ascending order of
their respective rates per annum if more than one Bid is submitted by such
Existing Holder, up to and including the excess of the number of
outstanding AMPS held by such Existing Holder over the number of
outstanding AMPS subject to any Hold Order referred to in clause (i) above
(and if more than one Bid submitted by such Existing Holder specifies the
same rate per annum and together they cover more than the remaining number
of shares that can be the subject of valid Bids after application of clause
(i) above and of the foregoing portion of this clause (ii) to any Bid or
Bids specifying a lower rate or rates per annum, the number of shares
subject to each of such Bids will be reduced pro rata so that such Bids, in
the aggregate, cover exactly such remaining number of outstanding shares);
and the number of outstanding shares, if any, subject to Bids not valid
under this clause (ii) shall be treated as the subject of a Bid by a
Potential Holder; and
(iii) any Sell Order will be considered valid up to and including the
excess of the number of outstanding AMPS held by such Existing Holder over
the sum of the number of shares of AMPS subject to Hold Orders referred to
in clause (i) above and the number of AMPS subject to valid Bids by such
Existing Holder referred to in clause (ii) above; provided that, if more
than one Sell Order is submitted by any Existing Holder and the number of
AMPS subject to such Sell Orders is greater than such excess, the number of
AMPS subject to each of such Sell Orders will be reduced pro rata so that
such Sell Orders, in the aggregate, will cover exactly the number of AMPS
equal to such excess.
If more than one Bid of any Potential Holder is submitted in any Auction,
each Bid submitted in such Auction will be considered a separate Bid with the
rate per annum and number of AMPS therein specified.
28
<PAGE> 30
Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate. Not earlier than the Submission Deadline for each Auction, the Auction
Agent will assemble all Orders submitted or deemed submitted to it by the
Broker-Dealers (each such "Hold Order," "Bid" or "Sell Order" as submitted or
deemed submitted by a Broker-Dealer hereinafter being referred to as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order") and will determine the excess of the
number of outstanding shares of AMPS over the number of outstanding AMPS subject
to Submitted Hold Orders (such excess being referred to as the "Available AMPS")
and whether Sufficient Clearing Bids have been made in such Auction. Sufficient
Clearing Bids will have been made if the number of outstanding AMPS that are the
subject of Submitted Bids of Potential Holders with rates per annum not higher
than the Maximum Applicable Rate equals or exceeds the number of outstanding
shares that are the subject of Submitted Sell Orders (including the number of
shares subject to Bids of Existing Holders specifying rates per annum higher
than the Maximum Applicable Rate).
If Sufficient Clearing Bids have been made, the Auction Agent will
determine the lowest rate per annum specified in the Submitted Bids (the
"Winning Bid Rate") which would result in the number of shares subject to
Submitted Bids specifying such rate per annum or a lower rate per annum being at
least equal to the Available AMPS. If Sufficient Clearing Bids have been made,
the Winning Bid Rate will be the Applicable Rate for the next Dividend Period
for all AMPS then outstanding.
If Sufficient Clearing Bids have not been made (other than because all
outstanding shares of AMPS are the subject of Submitted Hold Orders), the
Dividend Period next following the Auction automatically will be a 7-Day
Dividend Period, and the Applicable Rate for such Dividend Period will be equal
to the Maximum Applicable Rate. If Sufficient Clearing Bids have not been made,
Beneficial Owners that have Submitted Sell Orders will not be able to sell in
the Auction all, and may not be able to sell any, AMPS subject to such Submitted
Sell Orders. See "Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares." Thus, under some circumstances, Beneficial
Owners may not have liquidity of investment.
Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares. Based on the determinations described under
"Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate" and subject to the discretion of the Auction Agent to round as described
below, Submitted Bids and Submitted Sell Orders will be accepted or rejected in
the order of priority set forth in the Auction Procedures with the result that
Existing Holders and Potential Holders of AMPS will sell, continue to hold
and/or purchase AMPS as set forth below. Existing Holders that submit or are
deemed to have submitted Hold Orders will continue to hold the AMPS subject to
such Hold Orders.
If Sufficient Clearing Bids have been made:
(a) each Existing Holder that placed a Submitted Bid specifying a rate
per annum higher than the Winning Bid Rate or a Submitted Sell Order will
sell the outstanding AMPS subject to such Submitted Bid or Submitted Sell
Order;
(b) each Existing Holder that placed a Submitted Bid specifying a rate
per annum lower than the Winning Bid Rate will continue to hold the
outstanding AMPS subject to such Submitted Bid;
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<PAGE> 31
(c) each Potential Holder that placed a Submitted Bid specifying a
rate per annum lower than the Winning Bid Rate will purchase the number of
AMPS subject to such Submitted Bid;
(d) each Existing Holder that placed a Submitted Bid specifying a rate
per annum equal to the Winning Bid Rate will continue to hold the
outstanding AMPS subject to such Submitted Bids, unless the number of
outstanding AMPS subject to all such Submitted Bids of Existing Holders is
greater than the excess of the Available AMPS over the number of AMPS
accounted for in clauses (b) and (c) above, in which event each Existing
Holder with such a Submitted Bid will sell a number of outstanding AMPS
determined on a pro rata basis based on the number of outstanding AMPS
subject to all such Submitted Bids of such Existing Holders; and
(e) each Potential Holder that placed a Submitted Bid specifying a
rate per annum equal to the Winning Bid Rate will purchase any Available
AMPS not accounted for in clause (b), (c) or (d) above on a pro rata basis
based on the AMPS subject to all such Submitted Bids of Potential Holders.
If Sufficient Clearing Bids have not been made (other than because all
outstanding shares of AMPS are the subject of Submitted Hold Orders):
(a) each Existing Holder that placed a Submitted Bid specifying a rate
per annum equal to or lower than the Maximum Applicable Rate will continue
to hold the outstanding AMPS subject to such Submitted Bid;
(b) each Potential Holder that placed a Submitted Bid specifying a
rate per annum equal to or lower than the Maximum Applicable Rate will
purchase the number of AMPS subject to such Submitted Bid; and
(c) each Existing Holder that placed a Submitted Bid specifying a rate
per annum higher than the Maximum Applicable Rate or a Submitted Sell Order
will sell a number of outstanding AMPS determined on a pro rata basis based
on the outstanding AMPS subject to all such Submitted Bids and Submitted
Sell Orders.
If as a result of the Auction Procedures described above any Existing
Holder would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a share of AMPS, the Auction
Agent, in such manner as, in its sole discretion, it shall determine, will round
up or down the number of AMPS being sold or purchased on such Auction Date so
that each share sold or purchased by each Existing Holder or Potential Holder
will be a whole share of AMPS. If any Potential Holder would be entitled or
required to purchase less than a whole share of AMPS, the Auction Agent, in such
manner as, in its sole discretion, it shall determine, will allocate AMPS for
purchase among Potential Holders so that only whole shares of AMPS are purchased
by any such Potential Holder, even if such allocation results in one or more of
such Potential Holders not purchasing any AMPS.
Notification of Results; Settlement. The Auction Agent will advise each
Broker-Dealer who submitted a Bid or Sell Order in an Auction whether such Bid
or Sell Order was accepted or rejected in whole or in part and of the Applicable
Rate for the next Dividend Period for the related AMPS by telephone at
approximately 3:00 P.M., Eastern time, on the Auction Date for such Auction.
Each such Broker-Dealer that submitted an Order for the account of a customer
then will
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<PAGE> 32
advise such customer whether such Bid or Sell Order was accepted or rejected,
will confirm purchases and sales with each customer purchasing or selling AMPS
as a result of the Auction and will advise each customer purchasing or selling
AMPS to give instructions to its Agent Member of the Securities Depository to
pay the purchase price against delivery of such shares or to deliver such shares
against payment therefor as appropriate. If a customer selling AMPS as a result
of an Auction shall fail to instruct its Agent Member to deliver such shares,
the Broker-Dealer that submitted such customer's Bid or Sell Order will instruct
such Agent Member to deliver such shares against payment therefor. Each
Broker-Dealer that submitted a Hold Order in an Auction on behalf of a customer
also will advise such customer of the Applicable Rate for the next Dividend
Period for the AMPS. The Auction Agent will record each transfer of AMPS on the
record book of Existing Holders to be maintained by the Auction Agent.
In accordance with the Securities Depository's normal procedures, on the
day after each Auction Date, the transactions described above will be executed
through the Securities Depository, and the accounts of the respective Agent
Members at the Securities Depository will be debited and credited as necessary
to effect the purchases and sales of AMPS as determined in such Auction.
Purchasers will make payment through their Agent Members in same-day funds to
the Securities Depository against delivery through their Agent Members; the
Securities Depository will make payment in accordance with its normal
procedures, which now provide for payment in same-day funds. If the procedures
of the Securities Depository applicable to AMPS shall be changed to provide for
payment in next-day funds, then purchasers may be required to make payment in
next-day funds. If the certificates for AMPS are not held by the Securities
Depository or its nominee, payment will be made in same-day funds to the Auction
Agent against delivery of such certificates.
If any Existing Holder selling AMPS in an Auction fails to deliver such
shares, the Broker-Dealer of any person that was to have purchased AMPS in such
Auction may deliver to such person a number of whole AMPS that is less than the
number of shares that otherwise was to be purchased by such person. In such
event, the number of AMPS to be so delivered will be determined by such
Broker-Dealer. Delivery of such lesser number of shares will constitute good
delivery. Each Broker-Dealer Agreement also will provide that neither the Fund
nor the Auction Agent will have responsibility or liability with respect to the
failure of a Potential Beneficial Owner, Beneficial Owner or their respective
Agent Members to deliver AMPS or to pay for AMPS purchased or sold pursuant to
an Auction or otherwise.
BROKER-DEALERS
General. The Broker-Dealer Agreements provide that a Broker-Dealer may
submit Orders in Auctions for its own account, unless the Fund notifies all
Broker-Dealers that they no longer may do so; provided that Broker-Dealers may
continue to submit Hold Orders and Sell Orders. If a Broker-Dealer submits an
Order for its own account in any Auction of any series of AMPS, it may have
knowledge of Orders placed through it in that Auction and therefore have an
advantage over other Bidders, but such Broker-Dealer would not have knowledge of
Orders submitted by other Broker-Dealers in that Auction.
Fees. The Auction Agent after each Auction will pay a service charge from
funds provided by the Fund to each Broker-Dealer on the basis of the purchase
price of AMPS placed by such Broker-Dealer at such Auction. The service charge
(i) for any 7-Day Dividend Period shall be payable at
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<PAGE> 33
the annual rate of 0.25% of the purchase price of the AMPS placed by such
Broker-Dealer in any such Auction and (ii) for any Special Dividend Period shall
be determined by mutual consent of the Fund and any such Broker-Dealer or
Broker-Dealers and shall be based upon a selling concession that would be
applicable to an underwriting of fixed or variable rate preferred shares with a
similar final maturity or variable rate dividend period, respectively, at the
commencement of the Dividend Period with respect to such Auction. For the
purposes of the preceding sentence, AMPS will be placed by a Broker-Dealer if
such shares were (i) the subject of Hold Orders deemed to have been made by
Beneficial Owners that were acquired by such Beneficial Owners through such
Broker-Dealer or (ii) the subject of the following Orders submitted by such
Broker-Dealer: (A) a Submitted Bid of a Beneficial Owner that resulted in such
Beneficial Owner continuing to hold such shares as a result of the Auction, (B)
a Submitted Bid of a Potential Beneficial Owner that resulted in such Potential
Beneficial Owner purchasing such shares as a result of the Auction or (C) a
Submitted Hold Order.
Secondary Trading Market. The Broker-Dealers intend to maintain a
secondary trading market in the AMPS outside of Auctions; however, they have no
obligation to do so and there can be no assurance that a secondary market for
the AMPS will develop or, if it does develop, that it will provide holders with
a liquid trading market (i.e., trading will depend on the presence of willing
buyers and sellers and the trading price is subject to variables to be
determined at the time of the trade by the Broker-Dealers). The AMPS will not be
registered on any stock exchange or on any automated quotation system. An
increase in the level of interest rates, particularly during any Long-Term
Dividend Period, likely will have an adverse effect on the secondary market
price of the AMPS, and a selling shareholder may sell AMPS between Auctions at a
price per share of less than $25,000.
RATING AGENCY GUIDELINES
Certain of the capitalized terms used herein are defined in the Glossary
that appears at the end of this prospectus.
The Fund intends that, so long as AMPS are outstanding, the composition of
its portfolio will reflect guidelines established by Moody's and S&P in
connection with the Fund's receipt of a rating for such shares on or prior to
their Date of Original Issue of at least "aaa" from Moody's and AAA from S&P.
Moody's and S&P, which are NRSROs, issue ratings for various securities
reflecting the perceived creditworthiness of such securities. The guidelines
described below have been developed by Moody's and S&P in connection with
issuances of asset-backed and similar securities, including debt obligations and
variable rate preferred stock, generally on a case-by-case basis through
discussions with the issuers of these securities. The guidelines are designed to
ensure that assets underlying outstanding debt or preferred stock will be varied
sufficiently and will be of sufficient quality and amount to justify
investment-grade ratings. The guidelines do not have the force of law but have
been adopted by the Fund in order to satisfy current requirements necessary for
Moody's and S&P to issue the above-described ratings for AMPS, which ratings
generally are relied upon by institutional investors in purchasing such
securities. The guidelines provide a set of tests for portfolio composition and
asset coverage that supplement (and in some cases are more restrictive than) the
applicable requirements under the 1940 Act. See "Description of AMPS -- Asset
Maintenance" herein and in the statement of additional information.
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<PAGE> 34
The Fund intends to maintain a Discounted Value for its portfolio at least
equal to the AMPS Basic Maintenance Amount. Moody's and S&P each has established
separate guidelines for determining Discounted Value. To the extent any
particular portfolio holding does not satisfy the applicable rating agency's
guidelines, all or a portion of such holding's value will not be included in the
calculation of Discounted Value (as defined by such rating agency). The Moody's
and S&P guidelines do not impose any limitations on the percentage of Fund
assets that may be invested in holdings not eligible for inclusion in the
calculation of the Discounted Value of the Fund's portfolio.
Upon any failure to maintain the required Discounted Value, the Fund will
seek to alter the composition of its portfolio to reattain a Discounted Value at
least equal to the AMPS Basic Maintenance Amount on or prior to the AMPS Basic
Maintenance Cure Date, thereby incurring additional transaction costs and
possible losses and/or gains on dispositions of portfolio securities. To the
extent any such failure is not cured in a timely manner, AMPS will be subject to
redemption. See "Description of AMPS -- Asset Maintenance" and "Description of
AMPS -- Redemption" herein and in the statement of additional information.
The Fund may, but is not required to, adopt any modifications to these
guidelines that hereafter may be established by Moody's or S&P. Failure to adopt
any such modifications, however, may result in a change in the ratings described
above or a withdrawal of ratings altogether. In addition, any rating agency
providing a rating for the AMPS, at any time, may change or withdraw any such
rating. As set forth in the Certificate of Designation, the Board of Trustees,
without shareholder approval, may modify certain definitions or restrictions
that have been adopted by the Fund pursuant to the rating agency guidelines,
provided the Board of Trustees has obtained written confirmation from Moody's
and S&P that any such change would not impair the ratings then assigned by
Moody's and S&P to the AMPS.
As described by Moody's and S&P, a preferred stock rating is an assessment
of the capacity and willingness of an issuer to pay preferred stock obligations.
The ratings on the AMPS are not recommendations to purchase, hold or sell AMPS,
inasmuch as the ratings do not comment as to market price or suitability for a
particular investor, nor do the rating agency guidelines described above address
the likelihood that a holder of AMPS will be able to sell such shares in an
Auction. The ratings are based on current information furnished to Moody's and
S&P by the Fund and the Investment Adviser and information obtained from other
sources. The ratings may be changed, suspended or withdrawn as a result of
changes in, or the unavailability of, such information. The Common Shares have
not been rated by a nationally recognized statistical rating organization.
For additional information concerning the Moody's and S&P ratings
guidelines, see "Rating Agency Guidelines" in the statement of additional
information.
INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS
The Investment Adviser, which is owned and controlled by Merrill Lynch &
Co., Inc. ("ML & Co."), a financial services holding company and the parent of
Merrill Lynch, provides the Fund with investment advisory and management
services. The Asset Management Group of ML & Co. (which includes the Investment
Adviser) acts as the investment adviser to more than 100 other registered
investment companies and offers investment advisory services to individuals and
institutional accounts. As of June, 1999, the Asset Management Group had a total
of approximately $516 billion
33
<PAGE> 35
in investment company and other portfolio assets under management (approximately
$36 billion of which were invested in municipal securities). This amount
includes assets managed for certain affiliates of the Investment Adviser. The
Investment Adviser is a limited partnership, the partners of which are ML & Co.
and Princeton Services. The principal business address of the Investment Adviser
is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
The Investment Advisory Agreement provides that, subject to the supervision
of the Board of Trustees of the Fund, the Investment Adviser is responsible for
the actual management of the Fund's portfolio. The responsibility for making
decisions to buy, sell or hold a particular security rests with the Investment
Adviser, subject to review by the Board of Trustees.
The Investment Adviser provides the portfolio management for the Fund. Such
portfolio management will consider analyses from various sources (including
brokerage firms with which the Fund does business), make the necessary
investment decisions, and place orders for transactions accordingly. The
Investment Adviser will also be responsible for the performance of certain
administrative and management services for the Fund. Robert A. DiMella and
Robert D. Sneeden, Jr. are the portfolio managers of the Fund and are primarily
responsible for the Fund's day-to-day management.
For the services provided by the Investment Adviser under the Investment
Advisory Agreement, the Fund will pay a monthly fee at an annual rate of 0.55 of
1% of the Fund's average weekly net assets (i.e., the average weekly value of
the total assets of the Fund, including proceeds from the issuance of preferred
shares, minus the sum of accrued liabilities of the Fund and accumulated
dividends on the preferred shares). For purposes of this calculation, average
weekly net assets are determined at the end of each month on the basis of the
average net assets of the Fund for each week during the month. The assets for
each weekly period are determined by averaging the net assets at the last
business day of a week with the net assets at the last business day of the prior
week.
The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and furnish
office space for officers and employees of the Fund connected with investment
and economic research, trading and investment management of the Fund, as well as
the compensation of all Trustees of the Fund who are affiliated persons of the
Investment Adviser or any of its affiliates. The Fund pays all other expenses
incurred in the operation of the Fund, including, among other things, expenses
for legal and auditing services, taxes, costs of printing proxies, listing fees,
if any, share certificates and shareholder reports, charges of the custodian and
the transfer and dividend disbursing agent and registrar, fees and expenses with
respect to the issuance of preferred shares, Securities and Exchange Commission
fees, fees and expenses of non-interested Trustees, accounting and pricing
costs, insurance, interest, brokerage costs, litigation and other extraordinary
or non-recurring expenses, mailing and other expenses properly payable by the
Fund. Accounting services are provided to the Fund by the Investment Adviser,
and the Fund reimburses the Investment Adviser for its costs in connection with
such services.
TAXES
In general, dividends on the AMPS will be exempt from Federal income tax in
the hands of holders of such AMPS, subject to the possible application of the
Federal alternative minimum tax. However, the Fund is required to allocate net
capital gains and other taxable income, if any,
34
<PAGE> 36
proportionately among the common shares and each series of AMPS in accordance
with the current position of the Internal Revenue Service ("IRS") described
under the heading "Taxes" in the statement of additional information. The Fund
may notify the Auction Agent of the amount of any net capital gains or other
anticipated taxable income to be included in any dividend on the AMPS prior to
the Auction establishing the Applicable Dividend Rate for such dividend. The
Auction Agent will in turn notify holders of the AMPS and prospective
purchasers. The amount of taxable income allocable to each series of AMPS will
depend upon the amount of such income realized by the Fund and cannot be
determined with certainty prior to the end of the Fund's fiscal year, but it is
not generally expected to be significant.
In general, shares of the Fund will be exempt from Florida intangible
personal property tax for Florida resident shareholders. Dividends paid to
individual Florida residents are not subject to personal income taxation by
Florida, because Florida does not impose a personal income tax. Shareholders not
subject to taxation by Florida do not benefit from the fact that shares of the
Fund will be exempt from the Florida intangible personal property tax.
Generally, within 60 days after the end of the Fund's taxable year, the
Fund will tell you the amount of exempt-interest dividends and capital gain
dividends you received that year. Capital gain dividends are taxable as
long-term capital gains to you regardless of how long you have held your shares.
The tax treatment of distributions from the Fund is the same whether you choose
to receive distributions in cash or to have them reinvested in shares of the
Fund.
If the Fund makes a Retroactive Taxable Allocation, it will pay Additional
Dividends to holders of AMPS who are subject to the Retroactive Taxable
Allocation. See "Description of AMPS -- Dividends -- Additional Dividends." The
Federal income tax consequences of Additional Dividends under existing law are
uncertain. The Fund intends to treat a holder as receiving a dividend
distribution in the amount of any Additional Dividend only as and when such
Additional Dividend is paid. An Additional Dividend generally will be designated
by the Fund as an exempt-interest dividend except as otherwise required by
applicable law. However, the IRS may assert that all or part of an Additional
Dividend is a taxable dividend either in the taxable year for which the
Retroactive Taxable Allocation is made or in the taxable year in which the
Additional Dividend is paid.
Because the Fund may from time to time invest a substantial portion of its
portfolio in municipal securities bearing income that is taxable under the
Federal alternative minimum tax, the Fund would not ordinarily be a suitable
investment for investors who are subject to the alternative minimum tax.
If at any time when AMPS are outstanding the Fund does not meet the asset
coverage requirements of the 1940 Act, the Fund will be required to suspend
distributions to holders of Common Shares until the asset coverage is restored.
See "Description of AMPS -- Restrictions on Dividends and Other Payments." This
may prevent the Fund from meeting certain distribution requirements for
qualification as a regulated investment company ("RIC"). Upon any failure to
meet the asset coverage requirements of the 1940 Act, the Fund, in its sole
discretion, may, and under certain circumstances will be required to, redeem
AMPS in order to maintain or restore the requisite asset coverage and avoid the
adverse consequences to the Fund and its shareholders of failing to
35
<PAGE> 37
qualify as a RIC. See "Description of AMPS -- Redemption." There can be no
assurance, however, that any such action would achieve such objectives.
By law, the Fund must withhold 31% of your distributions and proceeds if
you have not provided a taxpayer identification number or social security
number. For more information regarding the tax treatment of an investment in
AMPS, see "Taxes" in the statement of additional information.
Shareholders are urged to consult their tax advisers regarding the
availability of any exemptions from state or local taxes and with specific
questions as to Federal, foreign, state or local taxes.
DESCRIPTION OF CAPITAL SHARES
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, par value $.10 per share. The Board of Trustees may authorize separate
classes of shares together with such designations and powers, preferences and
rights, qualifications, limitations and restrictions as may be determined from
time to time by the Trustees. Pursuant to such authority, the Trustees have
authorized the issuance of an unlimited number of Common Shares together with
1,000,000 Preferred Shares. In connection with the offering described herein,
the Trustees of the Fund have authorized the issuance of 1,400 AMPS. For a
description of the AMPS, see "Description of AMPS" herein and in the statement
of additional information.
The Fund is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust of the Fund contains an express
disclaimer of shareholder liability for acts or obligations of the Fund and
provides for indemnification and reimbursement of expenses out of the Fund's
property for any shareholder held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund itself would
be unable to meet its obligations. Given the nature of the Fund's assets and
operations, the possibility of the Fund being unable to meet its obligations is
remote and, in the opinion of Massachusetts counsel to the Fund, the risk to
Fund shareholders is remote.
The Declaration of Trust further provides that no Trustee, officer,
employee or agent of the Fund is liable to the Fund or to any shareholder, nor
is any Trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise from
his or her own bad faith, willful misfeasance, gross negligence, or reckless
disregard of their duties. It also provides that all third persons shall look
solely to the Fund property for satisfaction of claims arising in connection
with the affairs of the Fund. With the exceptions stated, the Declaration of
Trust provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liability in connection with the affairs of the Fund.
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<PAGE> 38
The following table shows the amount of (i) capital shares authorized, (ii)
capital shares held by the Fund for its own account and (iii) capital shares
outstanding for each class of authorized securities of the Fund as of July 23,
1999.
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
AMOUNT AMOUNT HELD BY FUND (EXCLUSIVE OF AMOUNT HELD BY
TITLE OF CLASS AUTHORIZED FOR ITS OWN ACCOUNT FUND FOR ITS OWN ACCOUNT)
-------------- ---------- ------------------- ----------------------------
<S> <C> <C> <C>
Common Shares....................... Unlimited -0- 3,506,667
Preferred Shares.................... 1,000,000 -0- -0-
Auction Market Preferred
Shares....................... 1,400 -0- -0-
</TABLE>
COMMON SHARES
Holders of common shares are entitled to share equally in dividends
declared by the Board of Trustees payable to holders of common shares and in the
net assets of the Fund available for distribution to holders of common shares
after payment of the preferential amounts payable to holders of any outstanding
preferred shares. Neither holders of common shares nor holders of preferred
shares have pre-emptive or conversion rights and shares of common shares are not
redeemable. The outstanding shares of common shares are fully paid and
non-assessable.
Holders of common shares are entitled to one vote for each share held and
will vote with the holders of any outstanding AMPS or other preferred shares on
each matter submitted to a vote of holders of common shares, except as described
under "Description of AMPS -- Voting Rights" herein and in the statement of
additional information.
Shareholders are entitled to one vote for each share held. The common
shares, AMPS and any other preferred shares do not have cumulative voting
rights, which means that the holders of more than 50% of the common shares, AMPS
and any other preferred shares voting for the election of Trustees can elect all
of the Trustees standing for election by such holders, and, in such event, the
holders of the remaining common shares, AMPS and any other preferred shares will
not be able to elect any of such Trustees.
So long as any AMPS or any other preferred shares are outstanding, holders
of common shares will not be entitled to receive any dividends of or other
distributions from the Fund unless all accumulated dividends on outstanding AMPS
and any other preferred shares have been paid, and unless asset coverage (as
defined in the 1940 Act) with respect to such AMPS and any other preferred
shares would be at least 200% after giving effect to such distributions. See
"Description of AMPS -- Restrictions on Dividends and Other Payments" herein and
in the statement of additional information.
The Fund will send unaudited reports at least semi-annually and audited
financial statements annually to all of its shareholders.
The common shares will commence trading on the American Stock Exchange on
August 2, 1999. At July 23, 1999, the net asset value per common share was
$14.96.
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<PAGE> 39
PREFERRED SHARES
Pursuant to the Fund's Declaration of Trust, the Fund is authorized to
issue up to 1,000,000 Preferred Shares. Under the Certificate of Designation,
the Fund is authorized to issue an aggregate of 1,400 AMPS. See "Description of
AMPS." Under the 1940 Act, the Fund is permitted to have outstanding more than
one series of preferred shares as long as no single series has priority over
another series as to the distribution of assets of the Fund or the payment of
dividends. Neither holders of common shares nor holders of preferred shares have
pre-emptive rights to purchase any AMPS or any other preferred shares that might
be issued. It is anticipated that the net asset value per share of the AMPS will
equal its original purchase price per share plus accumulated dividends per
share.
CERTAIN PROVISIONS OF THE DECLARATION OF TRUST
The Fund's Declaration of Trust includes provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Trustees and could have
the effect of depriving shareholders of an opportunity to sell their shares at a
premium over prevailing market prices by discouraging a third party from seeking
to obtain control of the Fund. A Trustee may be removed from office with or
without cause but only by vote of the holders of at least 66 2/3% of the votes
entitled to be voted on the matter. A Trustee elected by all of the holders of
capital shares may be removed only by action of such holders, and a Trustee
elected by the holders of AMPS and any other preferred shares may be removed
only by action of AMPS and any other preferred shares.
In addition, the Declaration of Trust requires the favorable vote of the
holders of at least 66 2/3% of the Fund's outstanding shares, then entitled to
be voted, voting as a single class, to approve, adopt or authorize the
following:
- a merger or consolidation or statutory share exchange of the Fund with
any other entities,
- a sale of all or substantially all of the Fund's assets (other than in
the regular course of the Fund's investment activities), or
- a liquidation or dissolution of the Fund,
unless such action has been approved, adopted or authorized by the affirmative
vote of at least two-thirds of the total number of Trustees fixed in accordance
with the by-laws, in which case the affirmative vote of a majority of all of the
votes entitled to be cast by shareholders of the Fund, voting as a single class,
is required. Such approval, adoption or authorization of the foregoing would
also require the favorable vote of at least a majority of the Fund's preferred
shares then entitled to be voted, including the AMPS, voting as a separate
class.
In addition, conversion of the Fund to an open-end investment company would
require an amendment to the Fund's Declaration of Trust. The amendment would
have to be declared advisable by the Board of Trustees prior to its submission
to shareholders. Such an amendment would require the favorable vote of the
holders of at least 66 2/3% of the Fund's outstanding capital shares (including
the AMPS and any other preferred shares) entitled to be voted on the matter,
voting as a single class (or a majority of such shares if the amendment was
previously approved, adopted or authorized
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<PAGE> 40
by at least two-thirds of the total number of Trustees fixed in accordance with
the by-laws), and, the affirmative vote of at least a majority of outstanding
preferred shares of the Fund (including the AMPS), voting as a separate class.
Such a vote also would satisfy a separate requirement in the 1940 Act that the
change be approved by the shareholders. Shareholders of an open-end investment
company may require the company to redeem their common shares at any time
(except in certain circumstances as authorized by or under the 1940 Act) at
their net asset value, less such redemption charge, if any, as might be in
effect at the time of a redemption. All redemptions will be made in cash. If the
Fund is converted to an open-end investment company, it could be required to
liquidate portfolio securities to meet requests for redemption. Conversion to an
open-end investment company would also require redemption of all outstanding
preferred shares (including the AMPS) and would require changes in certain of
the Fund's investment policies and restrictions, such as those relating to the
issuance of senior securities, the borrowing of money and the purchase of
illiquid securities.
The Board of Trustees has determined that the 66 2/3% voting requirements
described above, which are greater than the minimum requirements under
Massachusetts law or the 1940 Act, are in the best interests of shareholders
generally. Reference should be made to the Charter on file with the Commission
for the full text of these provisions.
CUSTODIAN
The Fund's securities and cash are held under a custody agreement with
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110.
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") has
agreed, subject to the terms and conditions of a Purchase Agreement with the
Fund and the Investment Adviser, to purchase from the Fund all of the AMPS
offered hereby. The Underwriter is committed to purchase all of such shares if
any are purchased.
The Underwriter has advised the Fund that it proposes initially to offer
the AMPS to the public at the public offering price set forth on the cover page
of this prospectus, and to certain dealers at such price less a concession not
in excess of $ per share. The Underwriter may allow, and such dealers may
reallow, a discount not in excess of $ per share to other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed. The sales load of $ per share is equal to % of the initial
public offering price. Investors must pay for any AMPS purchased in the initial
public offering on or before August , 1999.
The Underwriter will act in Auctions as a Broker-Dealer as set forth under
"The Auction -- General -- Broker-Dealer Agreements" and will be entitled to
fees for services as a Broker-Dealer as set forth under "The
Auction -- Broker-Dealers." The Underwriter also may provide information to be
used in ascertaining the Reference Rate.
The Fund anticipates that the Underwriter from time to time may act as a
broker in connection with the execution of the Fund's portfolio transactions.
The Fund has obtained exemptive orders permitting it to engage in certain
principal transactions with the Underwriter involving high quality,
39
<PAGE> 41
short-term, tax-exempt securities, subject to certain conditions. See
"Investment Restrictions" and "Portfolio Transactions" in the statement of
additional information.
The Underwriter is an affiliate of the Investment Adviser.
The Fund and the Investment Adviser have agreed to indemnify the
Underwriter against certain liabilities including liabilities under the
Securities Act of 1933, as amended.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
The transfer agent, dividend disbursing agent and registrar for the shares
of AMPS will be IBJ Whitehall Bank & Trust Company, One State Street, New York,
New York 10004. The transfer agent, dividend disbursing agent and shareholder
servicing agent for the common shares is State Street Bank and Trust Company,
225 Franklin Street, Boston, Massachusetts 02110.
LEGAL OPINIONS
Certain legal matters in connection with the AMPS offered hereby will be
passed upon for the Fund and the Underwriter by Brown & Wood LLP, One World
Trade Center, New York, New York 10048-0557.
EXPERTS
The statement of assets, liabilities and capital of the Fund as of June 15,
1999 included in the statement of additional information has been so included in
reliance on the report of Deloitte & Touche LLP, independent auditors and on
their authority as experts in auditing and accounting. The selection of
independent auditors is subject to ratification by shareholders of the Fund.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Investment Adviser or other Fund
service providers do not properly address this problem before January 1, 2000.
The Investment Adviser expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Investment Adviser that they
also expect to resolve the Year 2000 Problem, and the Investment Adviser will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the issuers of securities
in which the Fund invests, and this could hurt the Fund's investment returns.
40
<PAGE> 42
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
Investment Objective and Policies........................... 3
Investment Restrictions..................................... 7
Description of AMPS......................................... 8
The Auction................................................. 16
Rating Agency Guidelines.................................... 17
Trustees and Officers....................................... 25
Investment Advisory and Management Arrangements............. 27
Portfolio Transactions...................................... 28
Taxes....................................................... 29
Net Asset Value............................................. 33
Additional Information...................................... 34
Independent Auditors' Report................................ 35
Statement of Assets, Liabilities and Capital................ 36
Schedule of Investments (Unaudited)......................... 37
Statement of Assets, Liabilities and Capital (Unaudited).... 40
Notes to Financial Statements (Unaudited)................... 41
Appendix A -- Economic and Other Conditions in Florida...... A-1
Appendix B -- Ratings of Municipal Bonds.................... B-1
Appendix C -- Portfolio Insurance........................... C-1
Appendix D -- Settlement Procedures......................... D-1
Appendix E -- Auction Procedures............................ E-1
</TABLE>
41
<PAGE> 43
GLOSSARY
" 'AA' (AA) Composite Commercial Paper Rate," on any Valuation Date, means
(i) the Interest Equivalent of the rate on commercial paper placed on behalf of
issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's or the
equivalent of such rating by another nationally recognized statistical rating
organization, as such rate is made available on a discount basis or otherwise by
the Federal Reserve Bank of New York for the Business Day immediately preceding
such date, or (ii) in the event that the Federal Reserve Bank of New York does
not make available such a rate, then the arithmetic average of the Interest
Equivalent of the rate on commercial paper placed on behalf of such issuers, as
quoted on a discount basis or otherwise by Merrill Lynch, Pierce, Fenner & Smith
Incorporated or its successors that are Commercial Paper Dealers, to the Auction
Agent for the close of business on the Business Day immediately preceding such
date. If one of the Commercial Paper Dealers does not quote a rate required to
determine the "AA" Composite Commercial Paper Rate, the "AA" Composite
Commercial Paper Rate will be determined on the basis of the quotation or
quotations furnished by any Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers selected by the Fund to provide such rate or rates not
being supplied by the Commercial Paper Dealer. If the number of Dividend Period
days shall be (i) 7 or more but fewer than 49 days, such rate shall be the
Interest Equivalent of the 30-day rate on such commercial paper; (ii) 49 or more
but fewer than 70 days, such rate shall be the Interest Equivalent of the 60-day
rate on such commercial paper; (iii) 70 or more days but fewer than 85 days,
such rate shall be the arithmetic average of the Interest Equivalent of the
60-day and 90-day rates on such commercial paper; (iv) 85 or more days but fewer
than 99 days, such rate shall be the Interest Equivalent of the 90-day rate on
such commercial paper; (v) 99 or more days but fewer than 120 days, such rate
shall be the arithmetic average of the Interest Equivalent of the 90-day and
120-day rates on such commercial paper; (vi) 120 or more days but fewer than 141
days, such rate shall be the Interest Equivalent of the 120-day rate on such
commercial paper; (vii) 141 or more days but fewer than 162 days, such rate
shall be the arithmetic average of the Interest Equivalent of the 120-day and
180-day rates on such commercial paper; and (viii) 162 or more days but fewer
than 183 days, such rate shall be the Interest Equivalent of the 180-day rate on
such commercial paper.
"Additional Dividend" has the meaning set forth on page 19 of this
prospectus.
"Agent Member" means the member of the Securities Depository that will act
on behalf of a Beneficial Owner of one or more shares of AMPS or on behalf of a
Potential Beneficial Owner.
"AMPS" means the Auction Market Preferred Shares, Series A, with a par
value of $.10 per share and a liquidation preference of $25,000 per share plus
an amount equal to accumulated but unpaid dividends thereon (whether or not
earned or declared), of the Fund.
"AMPS Basic Maintenance Amount" has the meaning set forth on page 21 of
this prospectus.
"AMPS Basic Maintenance Cure Date" has the meaning set forth on page 21 of
this prospectus.
"AMPS Basic Maintenance Report" has the meaning set forth on page 13 of the
statement of additional information.
42
<PAGE> 44
"Anticipation Notes" means the following Florida Municipal Bonds: revenue
anticipation notes, tax anticipation notes, tax and revenue anticipation notes,
grant anticipation notes and bond anticipation notes.
"Applicable Percentage" has the meaning set forth on page 26 of this
prospectus.
"Applicable Rate" means the rate per annum at which cash dividends are
payable on shares of AMPS for any Dividend Period.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means IBJ Whitehall Bank & Trust Company unless and until
another commercial bank, trust company or other financial institution appointed
by a resolution of the Board of Trustees of the Fund or a duly authorized
committee thereof enters into an agreement with the Fund to follow the Auction
Procedures for the purpose of determining the Applicable Rate and to act as
transfer agent, registrar, dividend disbursing agent and redemption agent for
the AMPS.
"Auction Agent Agreement" means the agreement entered into between the Fund
and the Auction Agent which provides, among other things, that the Auction Agent
will follow the Auction Procedures for the purpose of determining the Applicable
Rate.
"Auction Date" has the meaning set forth on page 24 of this prospectus.
"Auction Procedures" means the procedures for conducting Auctions set forth
in Appendix E to the statement of additional information.
"Available AMPS" has the meaning set forth on page 29 of this prospectus.
"Beneficial Owner" means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or if applicable, the Auction Agent) as a holder
of shares of AMPS or a Broker-Dealer that holds AMPS for its own account.
"Bid" has the meaning set forth on page 25 of this prospectus.
"Bidder" has the meaning set forth on page 25 of this prospectus.
"Board of Trustees" or "Board" means the Board of Trustees of the Fund.
"Broker-Dealer" means any broker-dealer, or other entity permitted by law
to perform the functions required of a Broker-Dealer in the Auction Procedures,
that has been selected by the Fund and has entered into a Broker-Dealer
Agreement with the Auction Agent that remains effective.
"Broker-Dealer Agreement" means an agreement entered into between the
Auction Agent and a Broker-Dealer, including Merrill Lynch, Pierce, Fenner &
Smith Incorporated, pursuant to which such Broker-Dealer agrees to follow the
Auction Procedures.
"Business Day" means a day on which the New York Stock Exchange is open for
trading and which is not a Saturday, Sunday or other day on which banks in The
City of New York are authorized or obligated by law to close.
"Cede" means Cede & Co., the nominee of DTC, and in whose name the AMPS
initially will be registered.
43
<PAGE> 45
"Certificate of Designation" means the Certificate of Designation of the
Fund specifying the powers, preferences and rights of the AMPS.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and such other commercial paper dealer or dealers as the Fund from
time to time may appoint or, in lieu thereof, their respective affiliates and
successors.
"Common shares" means the common shares, par value $.10 per share, of the
Fund.
"Date of Original Issue" means, with respect to each share of AMPS, the
date on which such share first is issued by the Fund.
"Declaration of Trust" means the Declaration of Trust, as amended and
supplemented (including the Certificate of Designation), of the Fund.
"Deposit Securities" means cash and Florida Municipal Bonds and Municipal
Bonds rated at least A2 (having a remaining maturity of 12 months or less), P-1,
VMIG-1 or MIG-1 by Moody's or A (having a remaining maturity of 12 months or
less), A-1+ or SP-1+ by S&P.
"Discount Factor" means a Moody's Discount Factor or an S&P Discount
Factor, as the case may be.
"Discounted Value" of any asset of the Fund means (i) with respect to an
S&P Eligible Asset, the quotient of the market value thereof divided by the
applicable S&P Discount Factor and (ii) with respect to a Moody's Eligible
Asset, the lower of par and the quotient of the market value thereof divided by
the applicable Moody's Discount Factor.
"Dividend Payment Date" has the meaning set forth on page 17 of this
prospectus.
"Dividend Periods" has the meaning set forth on page 16 of this prospectus.
"DTC" means The Depository Trust Company.
"Eligible Assets" means Moody's Eligible Assets or S&P Eligible Assets, as
the case may be.
"Existing Holder" means a Broker-Dealer or any such other person as may be
permitted by the Fund that is listed as the holder of record of AMPS in the
records of the Auction Agent.
"Fitch" means Fitch IBCA, Inc. or its successors.
"Florida Municipal Bonds" has the meaning set forth on page 9 of this
prospectus.
"Forward Commitments" has the meaning set forth on page 24 of the statement
of additional information.
"Fund" means MuniHoldings Florida Insured Fund V, a Massachusetts business
trust that is the issuer of the AMPS.
"Hold Order" has the meaning set forth on page 25 of this prospectus.
"Initial Dividend Payment Date" means the first Dividend Payment Date for
the AMPS.
44
<PAGE> 46
"Initial Dividend Period" means the period from and including the Date of
Original Issue to but excluding the Initial Dividend Payment Date for the AMPS.
"Initial Margin" means the amount of cash or securities deposited with a
broker as a margin payment at the time of purchase or sale of a financial
futures contract.
"Interest Equivalent" means a yield on a 360-day basis of a discount basis
security which is equal to the yield on an equivalent interest-bearing security.
"Investment Adviser" means Fund Asset Management, L.P.
"IRS" means the United States Internal Revenue Service.
"Long Term Dividend Period" means a dividend period of one year or more but
not greater than five years.
"Mandatory Redemption Price" has the meaning set forth on page 22 of this
prospectus.
"Marginal Tax Rate" means the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate, whichever is greater.
"Maximum Applicable Rate" has the meaning set forth on page 26 of this
prospectus.
"Maximum Potential Additional Dividend Liability" has the meaning set forth
on page 13 of the statement of additional information.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Moody's Discount Factor" has the meaning set forth on page 21 of the
statement of additional information.
"Moody's Eligible Assets" has the meaning set forth on page 22 of the
statement of additional information.
"Moody's Exposure Period" means a period that is the same length or longer
than the number of days used in calculating the cash dividend component of the
AMPS Basic Maintenance Amount and initially shall be the period commencing on
and including a given Valuation Date and ending 48 days thereafter.
"Moody's Hedging Transactions" has the meaning set forth on page 23 of the
statement of additional information.
45
<PAGE> 47
"Moody's Volatility Factor" means 272% as long as there has been no
increase enacted to the Marginal Tax Rate. If such an increase is enacted but
not yet implemented, the Moody's Volatility Factor shall be as follows:
<TABLE>
<CAPTION>
% CHANGE IN MOODY'S
MARGINAL TAX RATE VOLATILITY FACTOR
----------------- -----------------
<S> <C>
less than or equal to 5%.................... 292%
> 5% but less than or equal to 10%.......... 313%
> 10% but less than or equal to 15%......... 338%
> 15% but less than or equal to 20%......... 364%
> 20% but less than or equal to 25%......... 396%
> 25% but less than or equal to 30%......... 432%
> 30% but less than or equal to 35%......... 472%
> 35% but less than or equal to 40%......... 520%
</TABLE>
Notwithstanding the foregoing, the Moody's Volatility Factor may mean such
other potential dividend rate increase factor as Moody's advises the Fund in
writing is applicable.
"Municipal Bonds" has the meaning set forth on page 9 of this prospectus.
"Municipal Index" has the meaning set forth on page 19 of the statement of
additional information.
"1940 Act" means the Investment Company Act of 1940, as amended from time
to time.
"1940 Act AMPS Asset Coverage" has the meaning set forth on page 20-21 of
this prospectus.
"1940 Act Cure Date" has the meaning set forth on page 21 of this
prospectus.
"Non-Call Period" has the meaning set forth under "Specific Redemption
Provisions" below.
"Non-Payment Period" has the meaning set forth on page 11 of the statement
of additional information.
"Non-Payment Period Rate" has the meaning set forth on page 11 of the
statement of additional information.
"Notice of Revocation" has the meaning set forth on page 10 of the
statement of additional information.
"Notice of Special Dividend Period" has the meaning set forth on page 19 of
this prospectus.
"Optional Redemption Price" has the meaning set forth on page 21-22 of this
prospectus.
"Order" has the meaning set forth on page 25 of this prospectus.
"Policy" means an insurance policy purchased by the Fund which guarantees
the payment of principal and interest on specified Florida Municipal Bonds or
Municipal Bonds during the period in which such Florida Municipal Bonds or
Municipal Bonds are owned by the Fund; provided, however, that, as long as the
AMPS are rated by Moody's and S&P, the Fund will not obtain any Policy
46
<PAGE> 48
unless Moody's and S&P advise the Fund in writing that the purchase of such
Policy will not adversely affect their then-current rating on the AMPS.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of AMPS but that wishes to purchase
such shares, or that is a Beneficial Owner that wishes to purchase additional
AMPS.
"Potential Holder" means any Broker-Dealer or any such other person as may
be permitted by the Fund, including any Existing Holder, who may be interested
in acquiring AMPS (or, in the case of an Existing Holder, additional shares of
AMPS).
"Preferred shares" means preferred shares, par value $.10 per share, of the
Fund.
"Premium Call Period" has the meaning set forth under "Specific Redemption
Provisions" below.
"Receivables for Florida Municipal Bonds Sold," for purposes of determining
S&P Eligible Assets, has the meaning set forth on page 17-18 of the statement of
additional information.
"Receivables for Florida Municipal Bonds or Municipal Bonds Sold," for
purposes of determining Moody's Eligible Assets, has the meaning set forth on
page 20-21 of the statement of additional information.
"Reference Rate" means: (i) with respect to a Dividend Period or a Short
Term Dividend Period having 28 or fewer days, the higher of the applicable "AA"
Composite Commercial Paper Rate and the Taxable Equivalent of the Short Term
Municipal Bond Rate, (ii) with respect to any Short Term Dividend Period, having
more than 28 but fewer than 183 days, the applicable "AA" Composite Commercial
Paper Rate, (iii) with respect to any Short Term Dividend Period having 183 or
more but fewer than 364 days, the applicable U.S. Treasury Bill Rate and (iv)
with respect to any Long Term Dividend Period, the applicable U.S. Treasury Note
Rate.
"Request for Special Dividend Period" has the meaning set forth on page 18
of this prospectus.
"Response" has the meaning set forth on page 18 of this prospectus.
"Retroactive Taxable Allocation" has the meaning set forth on page 19 of
this prospectus.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., or its successors.
"S&P Discount Factor" has the meaning set forth on page 17 of the statement
of additional information.
"S&P Eligible Assets" has the meaning set forth on page 17 of the statement
of additional information.
"S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the AMPS Basic Maintenance Cure
Date, that the Fund has under the Certificate of Designation to cure any failure
to maintain, as of such Valuation Date, a Discounted Value for its portfolio at
least equal to the AMPS Basic Maintenance Amount.
47
<PAGE> 49
"S&P Hedging Transactions" has the meaning set forth on page 19-20 of the
statement of additional information.
"S&P Volatility Factor" means 277% or such other potential dividend rate
increase factor as S&P advises the Fund in writing is applicable.
"Securities Depository" means The Depository Trust Company and its
successors and assigns or any successor securities depository selected by the
Fund that agrees to follow the procedures required to be followed by such
securities depository in connection with AMPS.
"Sell Order" has the meaning specified in Subsection 10(b)(i) of the
Auction Procedures.
"7-Day Dividend Period" means a Dividend Period consisting of seven days.
"Short Term Dividend Period" means a dividend period the number of days in
which are evenly divisible by seven, and not fewer than seven days nor more than
364 days.
"Special Dividend Period" has the meaning set forth on page 16 of this
prospectus.
"Specific Redemption Provisions" means, with respect to a Special Dividend
Period, either, or any combination of, (i) a period (a "Non-Call Period")
determined by the Board of Trustees of the Fund, after consultation with the
Auction Agent and the Broker-Dealers, during which the AMPS subject to such
Dividend Period shall not be subject to redemption at the option of the Fund and
(ii) a period (a "Premium Call Period"), consisting of a number of whole years
and determined by the Board of Trustees of the Fund, after consultation with the
Auction Agent and the Broker-Dealers, during each year of which the AMPS subject
to such Dividend Period shall be redeemable at the Fund's option at a price per
share equal to $25,000 plus accumulated but unpaid dividends plus a premium
expressed as a percentage of $25,000, as determined by the Board of Trustees of
the Fund after consultation with the Auction Agent and the Broker-Dealers.
"Submission Deadline" has the meaning set forth on page 28 of this
prospectus.
"Submitted Bid" has the meaning set forth on page 29 of this prospectus.
"Submitted Hold Order" has the meaning set forth on page 29 of this
prospectus.
"Submitted Order" has the meaning set forth on page 29 of this prospectus.
"Submitted Sell Order" has the meaning set forth on page 29 of this
prospectus.
"Subsequent Dividend Period" means each Dividend Period after the Initial
Dividend Period.
"Substitute Rating Agency" and "Substitute Rating Agencies" shall mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by Merrill
Lynch, Pierce, Fenner & Smith Incorporated, or its respective affiliates and
successors, after consultation with the Fund, to act as a substitute rating
agency or substitute rating agencies, as the case may be, to determine the
credit ratings of the AMPS.
"Sufficient Clearing Bids" has the meaning set forth on page 29 of this
prospectus.
"Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Kenny
48
<PAGE> 50
S&P 30 day High Grade Index (the "Kenny Index"), or any successor index made
available for the Business Day immediately preceding such date but in any event
not later than 8:30 A.M., Eastern time, on such date by Kenny Information
Systems Inc. or any successor thereto, based upon 30-day yield evaluations at
par of bonds the interest on which is excludable for regular Federal income tax
purposes under the Code of "high grade" component issuers selected by Kenny
Information Systems Inc. or any such successor from time to time in its
discretion, which component issuers shall include, without limitation, issuers
of general obligation bonds but shall exclude any bonds the interest on which
constitutes an item of tax preference under Section 57(a) (5) of the Code, or
successor provisions, for purposes of the "alternative minimum tax," divided by
(B) 1.00 minus the Marginal Tax Rate (expressed as a decimal); provided,
however, that if the Kenny Index is not made so available by 8:30 A.M., Eastern
time, on such date by Kenny Information Systems Inc. or any successor, the
Taxable Equivalent of the Short-Term Municipal Bond Rate shall mean the quotient
of (A) the per annum rate expressed on an interest equivalent basis equal to the
most recent Kenny Index so made available for any preceding Business Day,
divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a decimal). The
Fund may not utilize a successor index to the Kenny Index unless Moody's and S&P
provide the Fund with written confirmation that the use of such successor index
will not adversely affect the then-current respective Moody's and S&P ratings of
the AMPS.
"Treasury Bonds" has the meaning set forth on page 19 of the statement of
additional information.
"U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent of
the rate on the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as such rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on
any date means the Interest Equivalent of the yield as calculated by reference
to the arithmetic average of the bid price quotations of the actively traded
Treasury Bill with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by bid price quotations as of any time on
the Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the Auction
Agent.
"U.S. Treasury Note Rate" on any date means (i) the yield as calculated by
reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related Dividend
Period, as determined by the bid price quotations as of any time on the Business
Day immediately preceding such date, obtained from at least three recognized
primary U.S. Government securities dealers selected by the Auction Agent.
49
<PAGE> 51
"Valuation Date" has the meaning set forth on page 21 of this prospectus.
"Variation Margin" means, in connection with an outstanding financial
futures contract owned or sold by the Fund, the amount of cash or securities
paid to or received from a broker (subsequent to the Initial Margin payment)
from time to time as the price of such financial futures contract fluctuates.
"Winning Bid Rate" has the meaning set forth on page 29 of this prospectus.
50
<PAGE> 52
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$35,000,000
MUNIHOLDINGS FLORIDA INSURED FUND V
AUCTION MARKET PREFERRED SHARES ["AMPS(R)"]
1,400 SHARES, SERIES A
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
AUGUST , 1999
(R) Registered trademark of Merrill Lynch & Co., Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 53
THE INFORMATION CONTAINED IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT
COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED JULY 28, 1999
STATEMENT OF ADDITIONAL INFORMATION
$35,000,000
MUNIHOLDINGS FLORIDA INSURED FUND IV
AUCTION MARKET PREFERRED SHARES ["AMPS(R)"]
1,400 SHARES, SERIES A
LIQUIDATION PREFERENCE $25,000 PER SHARE
------------------------
MuniHoldings Florida Insured Fund V (the "Fund") is a recently organized,
non-diversified, closed-end management investment company that seeks to provide
shareholders with current income exempt from Federal income tax and the
opportunity to own shares whose value is exempt from Florida intangible personal
property tax. The Fund seeks to achieve its objective by investing primarily in
a portfolio of long-term, investment grade municipal obligations the interest on
which, in the opinion of bond counsel to the issuer, is exempt from Federal
income tax and which enable shares of the Fund to be exempt from Florida
intangible personal property tax. The Fund intends to invest in municipal
obligations that are rated investment grade or, if unrated, are considered by
the Fund's investment adviser to be of comparable quality. Under normal
circumstances, at least 80% of the Fund's assets will be invested in municipal
obligations with remaining maturities of one year or more that are covered by
insurance guaranteeing the timely payment of principal at maturity and interest.
There can be no assurance that the Fund's investment objective will be realized.
For more information on the Fund's investment objective and policies, see
"Investment Objective and Policies."
------------------------
Certain capitalized terms not otherwise defined in this statement of
additional information have the meaning provided in the Glossary included as
part of the prospectus.
This statement of additional information is not a prospectus, but should be
read in conjunction with the prospectus of the Fund which has been filed with
the Securities and Exchange Commission (the "Commission") and can be obtained,
without charge, by calling (800) 637-3863. The prospectus is incorporated by
reference into this statement of additional information, and this statement of
additional information is incorporated by reference into the prospectus.
- ---------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
------------------------
MERRILL LYNCH & CO.
------------------------
The date of this statement of additional information is August , 1999.
<PAGE> 54
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
Investment Objective and Policies........................... 3
Investment Restrictions..................................... 7
Description of AMPS......................................... 8
The Auction................................................. 16
Rating Agency Guidelines.................................... 17
Trustees and Officers....................................... 25
Investment Advisory and Management Arrangements............. 27
Portfolio Transactions...................................... 28
Taxes....................................................... 29
Net Asset Value............................................. 33
Additional Information...................................... 34
Independent Auditors' Report................................ 35
Statement of Assets, Liabilities and Capital................ 36
Schedule of Investments (Unaudited)......................... 37
Statement of Assets, Liabilities and Capital (Unaudited).... 40
Notes to Financial Statements (Unaudited)................... 41
Appendix A -- Economic and Other Conditions in Florida...... A-1
Appendix B -- Ratings of Municipal Bonds.................... B-1
Appendix C -- Portfolio Insurance........................... C-1
Appendix D -- Settlement Procedures......................... D-1
Appendix E -- Auction Procedures............................ E-1
</TABLE>
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<PAGE> 55
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide shareholders with current
income exempt from Federal income tax and the opportunity to own shares whose
value is exempt from Florida intangible personal property tax. The Fund seeks to
achieve its investment objective by investing primarily in a portfolio of
long-term, investment grade municipal obligations issued by or on behalf of the
State of Florida, its political subdivisions, agencies and instrumentalities,
and other qualifying issuers, each of which pays interest which, in the opinion
of bond counsel to the issuer, is exempt from Federal income tax and which
enable shares of the Fund to be exempt from Florida intangible personal property
tax ("Florida Municipal Bonds"). The Fund intends to invest substantially all
(at least 80%) of its assets in Florida Municipal Bonds, except at times when
the Fund's investment adviser, Fund Asset Management, L.P. (the "Investment
Adviser"), considers that Florida Municipal Bonds of sufficient quality and
quantity are unavailable for investment at suitable prices by the Fund. To the
extent the Investment Adviser considers that suitable Florida Municipal Bonds
are not available for investment, the Fund may purchase other long-term
municipal obligations that are exempt from Federal income taxes but whose value
is not exempt from Florida intangible personal property taxes ("Municipal
Bonds"). The Fund will maintain at least 65% of its assets in Florida Municipal
Bonds and at least 80% of its assets in Florida Municipal Bonds and Municipal
Bonds, except during interim periods pending investment of the net proceeds of
public offerings of the Fund's securities and during temporary defensive
periods. Under normal circumstances, at least 80% of the Fund's assets will be
invested in municipal obligations with remaining maturities of one year or more
that are covered by insurance guaranteeing the timely payment of principal at
maturity and interest. The Fund's investment objective is a fundamental policy
that may not be changed without a vote of a majority of the Fund's outstanding
voting securities, as defined below under "Investment Restrictions." There can
be no assurance that the investment objective of the Fund will be realized. At
times the Fund may seek to hedge its portfolio through the use of options and
futures transactions to reduce volatility in the net asset value of its common
shares.
The Fund ordinarily does not intend to realize significant interest income
that is subject to Federal income tax or have significant assets subject to
Florida intangible personal property tax. The Fund may invest all or a portion
of its assets in certain tax-exempt securities classified as "private activity
bonds" (in general, bonds that benefit non-governmental entities) that may
subject certain investors in the Fund to a Federal alternative minimum tax.
The Fund also may invest in securities not issued by or on behalf of a
state or territory or by an agency or instrumentality thereof, if the Fund
nevertheless believes such securities pay interest or distributions that are
exempt from Federal income taxation ("Non-Municipal Tax-Exempt Securities").
Non-Municipal Tax-Exempt Securities may include securities issued by other
investment companies that invest in Florida Municipal Bonds and Municipal Bonds,
to the extent such investments are permitted by the Investment Company Act of
1940, as amended (the "1940 Act"). Other Non-Municipal Tax-Exempt Securities
could include trust certificates or other instruments evidencing interests in
one or more long-term Florida Municipal Bonds or Municipal Bonds. Certain
Non-Municipal Tax-Exempt Securities may be characterized as derivative
instruments. Non-Municipal Tax-Exempt Securities are considered "Florida
Municipal Bonds" or "Municipal Bonds" for purposes of the Fund's investment
objective and policies.
DESCRIPTION OF FLORIDA MUNICIPAL BONDS AND MUNICIPAL BONDS
Florida Municipal Bonds and Municipal Bonds include debt obligations issued
to obtain funds for various public purposes, including construction of a wide
range of public facilities, refunding of outstanding obligations and obtaining
funds for general operating expenses and loans to other public institutions and
facilities. In addition, certain types of private activity bonds ("PABs") are
issued by or on behalf of public authorities to finance various privately
operated facilities, including airports, public ports, mass commuting
facilities, multifamily housing projects, as well as facilities for water
supply, gas, electricity, sewage or solid waste disposal. For purposes of this
statement of additional information, such obligations are Municipal Bonds if the
interest thereon is exempt from Federal income tax and are Florida Municipal
Bonds if the interest thereon is exempt from Federal income tax and the
obligation is exempt from Florida intangible personal property tax, even though
such bonds may be industrial development bonds or PABs as discussed below. Also,
for purposes
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<PAGE> 56
of this statement of additional information, Non-Municipal Tax-Exempt Securities
as discussed above will be considered Florida Municipal Bonds or Municipal
Bonds.
The two principal classifications of Florida Municipal Bonds and Municipal
Bonds are "general obligation" bonds and "revenue" bonds, which latter category
includes PABs and, for bonds issued on or before August 15, 1986, industrial
development bonds or "IDBs". General obligation bonds are typically secured by
the issuer's pledge of faith, credit and taxing power for the repayment of
principal and the payment of interest. Revenue or special obligation bonds are
typically payable only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise tax
or other specific revenue source such as from the user of the facility being
financed. PABs are in most cases revenue bonds and do not generally constitute
the pledge of the credit or taxing power of the issuer of such bonds. The
repayment of principal and the payment of interest on revenue bonds depends
solely on the ability of the user of the facility financed by the bonds to meet
its financial obligations and the pledge, if any, of real and personal property
so financed as security for such payment. Florida Municipal Bonds and Municipal
Bonds may also include "moral obligation" bonds, which are normally issued by
special purpose public authorities. If an issuer of moral obligation bonds is
unable to meet its obligations, the repayment of such bonds becomes a moral
commitment but not a legal obligation of the state or municipality in question.
The Fund may purchase Florida Municipal Bonds and Municipal Bonds
classified as PABs. Interest received on certain PABs is treated as an item of
"tax preference" for purposes of the Federal alternative minimum tax and may
impact the overall tax liability of investors in the Fund. There is no
limitation on the percentage of the Fund's assets that may be invested in
Florida Municipal Bonds and Municipal Bonds the interest on which is treated as
an item of "tax preference" for purposes of the Federal alternative minimum tax.
See "Taxes -- General."
Also included within the general category of Florida Municipal Bonds and/or
Municipal Bonds are certificates of participation (COPs) executed and delivered
for the benefit of government authorities or entities to finance the acquisition
or construction of equipment, land and/or facilities. COPs represent
participations in a lease, an installment purchase contract or a conditional
sales contract (hereinafter collectively referred to as "lease obligations")
relating to such equipment, land or facilities. Although lease obligations
typically do not constitute general obligations of the issuer for which the
issuer's unlimited taxing power is pledged, a lease obligation frequently is
backed by the issuer's covenant to budget for, appropriate and make the payments
due under the lease obligation. However, certain lease obligations contain "non-
appropriation" clauses which provide that the issuer has no obligation to make
lease or installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. Although "non-appropriation"
lease obligations are secured by the lease property, disposition of the property
in the event of foreclosure might prove difficult.
Federal tax legislation has limited and may continue to limit the types and
volume of such bonds the interest on which is excludable from income for Federal
income tax purposes. Such legislation may affect the availability of Florida
Municipal Bonds and Municipal Bonds for investment by the Fund.
OPTIONS AND FUTURES TRANSACTIONS
The following is a description of the options and futures transactions in
which the Fund may engage, limitations on the Fund's use of such transactions
and risks associated with these transactions. The investment policies with
respect to the hedging transactions of the Fund are not fundamental policies and
may be modified by the Board of Trustees of the Fund without the approval of the
Fund's shareholders.
Writing Covered Call Options. The Fund may write (i.e., sell) covered call
options with respect to Florida Municipal Bonds and Municipal Bonds it owns,
thereby giving the holder of the option the right to buy the underlying security
covered by the option from the Fund at the stated exercise price until the
option expires. The Fund writes only covered call options, which means that so
long as the Fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option. The Fund may not write covered call
options on underlying securities in an amount exceeding 15% of the market value
of its total assets.
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<PAGE> 57
The Fund will receive a premium from writing a call option, which increases
the Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, the Fund limits its
opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as a writer continues. Covered call options may serve as a partial
hedge against a decline in the price of the underlying security. The Fund may
engage in closing transactions in order to terminate outstanding options that it
has written.
Purchase of Options. The Fund may purchase put options in connection with
its hedging activities. By buying a put the Fund has a right to sell the
underlying security at the exercise price, thus limiting the Fund's risk of loss
through a decline in the market value of the security until the put expires. The
amount of any appreciation in the value of the underlying security will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Prior to its expiration, a put option may be sold in
a closing sale transaction; profit or loss from the sale will depend on whether
the amount received is more or less than the premium paid for the put option
plus the related transaction costs. A closing sale transaction cancels out the
Fund's position as the purchaser of an option by means of an offsetting sale of
an identical option prior to the expiration of the option it has purchased. In
certain circumstances, the Fund may purchase call options on securities held in
its portfolio on which it has written call options or on securities that it
intends to purchase. The Fund will not purchase options on securities if, as a
result of such purchase, the aggregate cost of all outstanding options on
securities held by the Fund would exceed 5% of the market value of the Fund's
total assets.
Financial Futures Contracts and Options. The Fund is authorized to
purchase and sell certain financial futures contracts and options thereon solely
for the purpose of hedging its investments in Florida Municipal Bonds and
Municipal Bonds against declines in value and hedging against increases in the
cost of securities it intends to purchase. A financial futures contract
obligates the seller of a contract to deliver and the purchaser of a contract to
take delivery of the type of financial instrument covered by the contract or, in
the case of index-based financial futures contracts, to make and accept a cash
settlement, at a specific future time for a specified price. A sale of financial
futures contracts may provide a hedge against a decline in the value of
portfolio securities because such depreciation may be offset, in whole or in
part, by an increase in the value of the position in the financial futures
contracts. A purchase of financial futures contracts may provide a hedge against
an increase in the cost of securities intended to be purchased because such
appreciation may be offset, in whole or in part, by an increase in the value of
the position in the financial futures contracts.
The purchase or sale of a financial futures contract differs from the
purchase or sale of a security in that no price or premium is paid or received.
Instead, an amount of cash or securities acceptable to the broker equal to
approximately 5% of the contract amount must be deposited with the broker. This
amount is known as initial margin. Subsequent payments to and from the broker,
called variation margin, are made on a daily basis as the price of the financial
futures contract fluctuates making the long and short positions in the financial
futures contract more or less valuable.
The Fund may purchase and sell financial futures contracts based on The
Bond Buyer Municipal Bond Index, a price-weighted measure of the market value of
40 large tax-exempt issues, and purchase and sell put and call options on such
financial futures contracts for the purpose of hedging Florida Municipal Bonds
and Municipal Bonds which the Fund holds or anticipates purchasing against
adverse changes in interest rates. The Fund also may purchase and sell financial
futures contracts on U.S. Government securities and purchase and sell put and
call options on such financial futures contracts for such hedging purposes. With
respect to U.S. Government securities, currently there are financial futures
contracts based on long-term U.S. Treasury bonds, U.S. Treasury notes, GNMA
Certificates and three-month U.S. Treasury bills.
Subject to policies adopted by the Board of Trustees, the Fund also may
engage in transactions in other financial futures contracts, such as financial
futures contracts on other municipal bond indices that may become available, if
the Investment Adviser should determine that there is normally sufficient
correlation between the prices of such financial futures contracts and the
Florida Municipal Bonds and Municipal Bonds in which the Fund invests to make
such hedging appropriate.
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<PAGE> 58
Over-The-Counter Options. The Fund may engage in options and futures
transactions on exchanges and in the over-the-counter markets. In general,
exchange-traded contracts are third-party contracts (i.e., performance of the
parties' obligations is guaranteed by an exchange or clearing corporation) with
standardized strike prices and expiration dates. Over-the-counter options
transactions ("OTC options") are two-party contracts with prices and terms
negotiated by the buyer and seller. See "Restrictions on OTC Options" below for
information as to restrictions on the use of OTC options.
Restrictions on OTC Options. The Fund will engage in transactions in OTC
options only with banks or dealers that have capital of at least $50 million or
whose obligations are guaranteed by an entity having capital of at least $50
million. Certain OTC options and assets used to cover OTC options written by the
Fund may be considered to be illiquid. The illiquidity of such options or assets
may prevent a successful sale of such options or assets, result in a delay of
sale, or reduce the amount of proceeds that might otherwise be realized.
Risk Factors in Options and Futures Transactions. Utilization of futures
transactions involves the risk of imperfect correlation in movements in the
price of financial futures contracts and movements in the price of the security
that is the subject of the hedge. If the price of the financial futures contract
moves more or less than the price of the security that is the subject of the
hedge, the Fund will experience a gain or loss that will not be completely
offset by movements in the price of such security. There is a risk of imperfect
correlation where the securities underlying financial futures contracts have
different maturities, ratings, geographic compositions or other characteristics
than the security being hedged. In addition, the correlation may be affected by
additions to or deletions from the index that serves as a basis for a financial
futures contract. Finally, in the case of financial futures contracts on U.S.
Government securities and options on such financial futures contracts, the
anticipated correlation of price movements between the U.S. Government
securities underlying the futures or options and Florida Municipal Bonds and
Municipal Bonds may be adversely affected by economic, political, legislative or
other developments which have a disparate impact on the respective markets for
such securities.
Under regulations of the Commodity Futures Trading Commission (the "CFTC"),
the futures trading activities described herein will not result in the Fund
being deemed a "commodity pool," as defined under such regulations, provided
that the Fund adheres to certain restrictions. In particular, the Fund may
purchase and sell financial futures contracts and options thereon (i) for bona
fide hedging purposes, without regard to the percentage of the Fund's assets
committed to margin and option premiums, and (ii) for non-hedging purposes if,
immediately thereafter, the sum of the amount of initial margin deposits on the
Fund's existing futures positions and option premiums entered into for
non-hedging purposes does not exceed 5% of the market value of the liquidation
value of the Fund's portfolio, after taking into account unrealized profits and
unrealized losses on any such transactions. Margin deposits may consist of cash
or securities acceptable to the broker and the relevant contract market.
When the Fund purchases a financial futures contract, or writes a put
option or purchases a call option thereon, it will maintain an amount of cash,
cash equivalents (e.g., commercial paper and daily tender adjustable notes) or
liquid securities in a segregated account with the Fund's custodian so that the
amount so segregated plus the amount of initial and variation margin held in the
account of its broker equals the market value of the financial futures contract,
thereby ensuring that the use of such financial futures contract is unleveraged.
Certain risks are involved in options and futures transactions. The
Investment Adviser believes, however, that, because the Fund will engage in
options and futures transactions only for hedging purposes, the Fund's options
and futures portfolio strategies will not subject the Fund to those risks
associated with speculation in options and futures transactions.
The volume of trading in the exchange markets with respect to Florida
Municipal Bond or Municipal Bond options may be limited, and it is impossible to
predict the amount of trading interest that may exist in such options. In
addition, there can be no assurance that viable exchange markets will continue
to be available.
The Fund intends to enter into options and futures transactions, on an
exchange or in the over-the-counter market, only if there appears to be a liquid
secondary market for such options or futures. There can be
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<PAGE> 59
no assurance, however, that a liquid secondary market will exist at any specific
time. Thus, it may not be possible to close an options or futures transaction.
The inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively hedge its portfolio. There is also
the risk of loss by the Fund of margin deposits or collateral in the event of
bankruptcy of a broker with which the Fund has an open position in an option or
financial futures contract.
The liquidity of a secondary market in a financial futures contract may be
adversely affected by "daily price fluctuation limits" established by commodity
exchanges that limit the amount of fluctuation in a financial futures contract
price during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures positions. Prices have in the past
reached or exceeded the daily limit on a number of consecutive trading days.
If it is not possible to close a financial futures position entered into by
the Fund, the Fund would continue to be required to make daily cash payments of
variation margin in the event of adverse price movements. In such a situation,
if the Fund has insufficient cash, it may have to sell portfolio securities to
meet daily variation margin requirements at a time when it may be
disadvantageous to do so.
The successful use of these transactions also depends on the ability of the
Investment Adviser to forecast correctly the direction and extent of interest
rate movements within a given time frame. To the extent these rates remain
stable during the period in which a financial futures contract is held by the
Fund or move in a direction opposite to that anticipated, the Fund may realize a
loss on the hedging transaction that is not fully or partially offset by an
increase in the value of portfolio securities. As a result, the Fund's total
return for such period may be less than if it had not engaged in the hedging
transaction. Furthermore, the Fund will only engage in hedging transactions from
time to time and may not necessarily be engaging in hedging transactions when
movements in interest rates occur. The Fund is not required to enter into
hedging transactions and may choose not to do so.
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions of the Fund and may
not be changed without the approval of the holders of a majority of the Fund's
outstanding common shares and outstanding AMPS and any other preferred shares,
voting together as a single class, and the majority of the outstanding AMPS and
any other preferred shares, voting as a separate class (which for this purpose
and under the 1940 Act means the lesser of (i) 67% of the shares of each class
of capital shares represented at a meeting at which more than 50% of the
outstanding shares of each class of capital shares are represented or (ii) more
than 50% of the outstanding shares of each class of capital shares). The Fund
may not:
1. Make investments for the purpose of exercising control or
management.
2. Purchase or sell real estate, commodities or commodity contracts;
provided that the Fund may invest in securities secured by real estate or
interests therein or issued by entities that invest in real estate or
interest therein, and the Fund may purchase and sell financial futures
contracts and options thereon.
3. Issue senior securities or borrow money except as permitted by
Section 18 of the 1940 Act.
4. Underwrite securities of other issuers except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933, as amended,
in selling portfolio securities.
5. Make loans to other persons, except that the Fund may purchase
Florida Municipal Bonds, Municipal Bonds and other debt securities and
enter into repurchase agreements in accordance with is investment
objective, policies and limitations.
6. Invest more than 25% of its total assets (taken at market value at
the time of each investment) in securities of issuers in a single industry;
provided that, for purposes of this restriction, states, municipalities and
their political subdivisions are not considered to be part of any industry.
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<PAGE> 60
Additional investment restrictions adopted by the Fund, which may be
changed by the Board of Trustees without shareholder approval, provide that the
Fund may not:
a. Purchase securities of other investment companies, except to the
extent that such purchases are permitted by applicable law. Applicable law
currently prohibits the Fund from purchasing the securities of other
investment companies except if immediately thereafter not more than (i) 3%
of the total outstanding voting stock of such company is owned by the Fund,
(ii) 5% of the Fund's total assets, taken at market value, would be
invested in any one such company, (iii) 10% of the Fund's total assets,
taken at market value, would be invested in such securities, and (iv) the
Fund, together with other investment companies having the same investment
adviser and companies controlled by such companies, owns not more than 10%
of the total outstanding stock of any one closed-end investment company.
b. Mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by the Fund except
as may be necessary in connection with borrowings mentioned in investment
restriction (3) above or except as may be necessary in connection with
transactions in financial futures contracts and options thereon.
c. Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities (the deposit or payment by the Fund of
initial or variation margin in connection with financial futures contracts
and options thereon is not considered the purchase of a security on
margin).
d. Make short sales of securities or maintain a short position or
invest in put, call, straddle or spread options, except that the Fund may
write, purchase and sell options and futures on Florida Municipal Bonds,
Municipal Bonds, U.S. Government obligations and related indices or
otherwise in connection with bona fide hedging activities and may purchase
and sell Call Rights to require mandatory tender for the purchase of
related Florida Municipal Bonds and Municipal Bonds.
If a percentage restriction on the investment or use of assets set forth
above is adhered to at the time a transaction is effected, later changes in
percentages resulting from changing values will not be considered a violation.
For so long as AMPS are rated by Moody's, the Fund will not change these
additional investment restrictions unless it receives written confirmation from
Moody's that engaging in such transactions would not impair the rating then
assigned to the AMPS by Moody's.
The Fund has no intention to file a voluntary application for relief under
Federal bankruptcy law or any similar application under state law for so long as
the Fund is solvent and does not foresee becoming insolvent.
The Investment Adviser of the Fund and Merrill Lynch are owned and
controlled by Merrill Lynch & Co. ("ML & Co."). Because of the affiliation of
Merrill Lynch with the Investment Adviser, the Fund is prohibited from engaging
in certain transactions involving Merrill Lynch except pursuant to an exemptive
order or otherwise in compliance with the provisions of the 1940 Act and the
rules and regulations thereunder. Included among such restricted transactions
will be purchases from or sales to Merrill Lynch of securities in transactions
in which it acts as principal. An exemptive order has been obtained that permits
the Fund to effect principal transactions with Merrill Lynch in high quality,
short-term, tax-exempt securities subject to conditions set forth in such order.
The Fund may consider in the future requesting an order permitting other
principal transactions with Merrill Lynch, but there can be no assurance that
such application will be made and, if made, that such order would be granted.
DESCRIPTION OF AMPS
Certain of the capitalized terms used herein are defined in the Glossary
that appears at the back of the prospectus.
The AMPS will be preferred shares that entitle their holders to receive
dividends when, as and if declared by the Board of Trustees, out of funds
legally available therefor, at a rate per year that may vary for the
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<PAGE> 61
successive Dividend Periods. After the Initial Dividend Period, each Subsequent
Dividend Period for the AMPS generally will be a 7-Day Dividend Period;
provided, however, that prior to any Auction, the Fund may elect, subject to
certain limitations described herein, upon giving notice to holders thereof, a
Special Dividend Period. The Applicable Rate for a particular Dividend Period
will be determined by an Auction conducted on the Business Day before the start
of such Dividend Period. Beneficial Owners and Potential Beneficial Owners of
AMPS may participate in Auctions therefor, although, except in the case of a
Special Dividend Period, Beneficial Owners desiring to continue to hold all of
their AMPS regardless of the Applicable Rate resulting from Auctions need not
participate. For an explanation of Auctions and the method of determining the
Applicable Rate, see Appendix E -- "Auction Procedures."
Except as otherwise required by law or unless there is no Securities
Depository, all outstanding AMPS will be represented by one or more certificates
registered in the name of the nominee of the Securities Depository (initially
expected to be Cede), and no person acquiring AMPS will be entitled to receive a
certificate representing such shares. See Appendix E -- "Auction Procedures." As
a result, the nominee of the Securities Depository is expected to be the sole
holder of record of the AMPS. Accordingly, each purchaser of AMPS must rely on
(i) the procedures of the Securities Depository and, if such purchaser is not a
member of the Securities Depository, such purchaser's Agent Member, to receive
dividends, distributions and notices and to exercise voting rights (if and when
applicable) and (ii) the records of the Securities Depository and, if such
purchaser is not a member of the Securities Depository, such purchaser's Agent
Member, to evidence its beneficial ownership of AMPS.
When issued and sold, the AMPS will have a liquidation preference of
$25,000 per share plus an amount equal to accumulated but unpaid dividends
(whether or not earned or declared) and will be fully paid and non-assessable.
See "Description of AMPS -- Liquidation Rights" in the prospectus. The AMPS will
not be convertible into common shares or other capital shares of the Fund, and
the holders thereof will have no preemptive rights. The AMPS will not be subject
to any sinking fund but will be subject to redemption at the option of the Fund
at the Optional Redemption Price on any Dividend Payment Date (except during the
Initial Dividend Period and during a Non-Call Period) and, under certain
circumstances, will be subject to mandatory redemption by the Fund at the
Mandatory Redemption Price stated in the prospectus. See "Description of
AMPS -- Redemption" in the prospectus.
In addition to serving as the Auction Agent in connection with the Auction
Procedures described in the prospectus, IBJ Whitehall Bank & Trust Company will
be the transfer agent, registrar, dividend disbursing agent and redemption agent
for the AMPS. The Auction Agent, however, will serve merely as the agent of the
Fund, acting in accordance with the Fund's instructions, and will not be
responsible for any evaluation or verification of any matters certified to it.
Except in an Auction, the Fund will have the right (to the extent permitted
by applicable law) to purchase or otherwise acquire any AMPS so long as the Fund
is current in the payment of dividends on AMPS and on any other capital shares
of the Fund ranking on a parity with the AMPS with respect to the payment of
dividends or upon liquidation.
The following supplements the description of the terms of the AMPS set
forth in the prospectus. This description does not purport to be complete and is
subject to and qualified in its entirety by reference to the Fund's Charter and
Certificate of Designation, including the provisions thereof establishing the
AMPS. The Fund's Charter and the form of Certificate of Designation establishing
the terms of the AMPS have been filed as exhibits to the Registration Statement
of which this statement of additional information is a part.
DIVIDENDS
General. The holders of the AMPS will be entitled to receive, when, as and
if declared by the Board of Trustees of the Fund, out of funds legally available
therefor, cumulative cash dividends on their shares, at the Applicable Rate
determined as set forth below under "Determination of Dividend Rate," payable on
the respective dates set forth below. Dividends on the AMPS so declared and
payable shall be paid (i) in preference to and in priority over any dividends so
declared and payable on the common shares, and (ii) to the extent permitted
under the Code and to the extent available, out of net tax-exempt income earned
on the
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Fund's investments. Generally, dividends on AMPS, to the extent that they are
derived from interest paid on Municipal Bonds, will be exempt from Federal
income taxes, subject to possible application of the alternative minimum tax.
See "Taxes."
Notification of Dividend Period. In determining whether the Fund should
issue a Notice of Special Dividend for the AMPS, the Broker-Dealers will
consider (i) existing short-term and long-term market rates and indices of such
short-term and long-term rates, (ii) existing market supply and demand for
short-term and long-term securities, (iii) existing yield curves for short-term
and long-term securities comparable to the AMPS, (iv) industry and financial
conditions which may affect the AMPS, (v) the investment objective of the Fund
and (vi) the Dividend Periods and dividend rates at which current and potential
beneficial holders of the AMPS would remain or become beneficial holders. If the
Broker-Dealers shall not give the Fund and the Auction Agent a Response by such
second Business Day or if the Response states that given the factors set forth
above it is not advisable that the Fund give a Notice of Special Dividend Period
for the AMPS, the Fund may not give a Notice of Special Dividend Period in
respect of such Request for Special Dividend Period. In the event the Response
indicates that it is advisable that the Fund give a Notice of Special Dividend
Period for the AMPS, the Fund, by no later than the second Business Day prior to
such Auction Date, may give a notice (a "Notice of Special Dividend Period") to
the Auction Agent, the Securities Depository and each Broker-Dealer, which
notice will specify (i) the duration of the Special Dividend Period, (ii) the
Optional Redemption Price as specified in the related Response and (iii) the
Specific Redemption Provisions, if any, as specified in the related Response.
The Fund also shall provide a copy of such Notice of Special Dividend Period to
Moody's and S&P. The Fund shall not give a Notice of Special Dividend Period,
and, if such Notice of Special Dividend Period shall have been given already,
shall give telephonic and written notice of its revocation (a "Notice of
Revocation") to the Auction Agent, each Broker-Dealer, and the Securities
Depository on or prior to the Business Day prior to the relevant Auction Date if
(x) either the 1940 Act AMPS Asset Coverage is not satisfied or the Fund shall
fail to maintain S&P Eligible Assets and Moody's Eligible Assets each with an
aggregate Discounted Value at least equal to the AMPS Basic Maintenance Amount,
in each case on each of the two Valuation Dates immediately preceding the
Business Day prior to the relevant Auction Date on an actual basis and on a pro
forma basis giving effect to the proposed Special Dividend Period (using as a
pro forma dividend rate with respect to such Special Dividend Period the
dividend rate which the Broker-Dealers shall advise the Fund is an approximately
equal rate for securities similar to the AMPS with an equal dividend period),
provided that, in calculating the aggregate Discounted Value of Moody's Eligible
Assets for this purpose, the Moody's Exposure Period shall be deemed to be one
week longer, (y) sufficient funds for the payment of dividends payable on the
immediately succeeding Dividend Payment Date have not been irrevocably deposited
with the Auction Agent by the close of business on the third Business Day
preceding the related Auction Date or (z) the Broker-Dealers jointly advise the
Fund that, after consideration of the factors listed above, they have concluded
that it is advisable to give a Notice of Revocation. The Fund also shall provide
a copy of such Notice of Revocation to Moody's and S&P. If the Fund is
prohibited from giving a Notice of Special Dividend Period as a result of the
factors enumerated in clause (x), (y) or (z) above or if the Fund gives a Notice
of Revocation with respect to a Notice of Special Dividend Period, the next
succeeding Dividend Period for that series will be a 7-Day Dividend Period. In
addition, in the event Sufficient Clearing Bids are not made in any Auction or
an Auction is not held for any reason, the next succeeding Dividend Period will
be a 7-Day Dividend Period, and the Fund may not again give a Notice of Special
Dividend Period (and any such attempted notice shall be null and void) until
Sufficient Clearing Bids have been made in an Auction with respect to a 7-Day
Dividend Period.
Non-Payment Period; Late Charge. A Non-Payment Period will commence if the
Fund fails to (i) declare, prior to the close of business on the second Business
Day preceding any Dividend Payment Date, for payment on or (to the extent
permitted as described below) within three Business Days after such Dividend
Payment Date to the persons who held such shares as of 12:00 noon, Eastern time,
on the Business Day preceding such Dividend Payment Date, the full amount of any
dividend on shares of AMPS payable on such Dividend Payment Date or (ii)
deposit, irrevocably in trust, in same-day funds, with the Auction Agent by
12:00 noon, Eastern time, (A) on such Dividend Payment Date the full amount of
any cash dividend on such shares (if declared) payable on such Dividend Payment
Date or (B) on any redemption date for AMPS called for redemption, the Mandatory
Redemption Price per share of such AMPS or, in the case of an optional
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redemption, the Optional Redemption Price per share. Such Non-Payment Period
will consist of the period commencing on and including the aforementioned
Dividend Payment Date or redemption date, as the case may be, and ending on and
including the Business Day on which, by 12:00 noon, Eastern time, all unpaid
cash dividends and unpaid redemption prices shall have been so deposited or
otherwise shall have been made available to the applicable holders in same-day
funds, provided that a Non-Payment Period for the AMPS will not end unless the
Fund shall have given at least five days' but no more than 30 days' written
notice of such deposit or availability to the Auction Agent, the Securities
Depository and all holders of AMPS. Notwithstanding the foregoing, the failure
by the Fund to deposit funds as provided for by clauses (ii)(A) or (ii)(B) above
within three Business Days after any Dividend Payment Date or redemption date,
as the case may be, in each case to the extent contemplated below, shall not
constitute a "Non-Payment Period."
The Applicable Rate for each Dividend Period for AMPS, commencing during a
Non-Payment Period, will be equal to the Non-Payment Period Rate; and each
Dividend Period commencing after the first day of, and during, a Non-Payment
Period shall be a 7-Day Dividend Period. Any dividend on AMPS due on any
Dividend Payment Date for such shares (if, prior to the close of business on the
second Business Day preceding such Dividend Payment Date, the Fund has declared
such dividend payable on such Dividend Payment Date to the persons who held such
shares as of 12:00 noon, Eastern time, on the Business Day preceding such
Dividend Payment Date) or redemption price with respect to such shares not paid
to such persons when due may be paid to such persons in the same form of funds
by 12:00 noon, Eastern time, on any of the first three Business Days after such
Dividend Payment Date or due date, as the case may be, provided that such amount
is accompanied by a late charge calculated for such period of non-payment at the
Non-Payment Period Rate applied to the amount of such non-payment based on the
actual number of days comprising such period divided by 365. In the case of a
willful failure of the Fund to pay a dividend on a Dividend Payment Date or to
redeem any AMPS on the date set for such redemption, the preceding sentence
shall not apply and the Applicable Rate for the Dividend Period commencing
during the Non-Payment Period resulting from such failure shall be the
Non-Payment Period Rate. For the purposes of the foregoing, payment to a person
in same-day funds on any Business Day at any time will be considered equivalent
to payment to that person in New York Clearing House (next-day) funds at the
same time on the preceding Business Day, and any payment made after 12:00 noon,
Eastern time, on any Business Day shall be considered to have been made instead
in the same form of funds and to the same person before 12:00 noon, Eastern
time, on the next Business Day.
The Non-Payment Period Rate initially will be 200% of the applicable
Reference Rate (or 275% of such rate if the Fund has provided notification to
the Auction Agent prior to the Auction establishing the Applicable Rate for any
dividend that net capital gains or other taxable income will be included in such
dividend on AMPS), provided that the Board of Trustees of the Fund shall have
the authority to adjust, modify, alter or change from time to time the initial
Non-Payment Period Rate if the Board of Trustees of the Fund determines and
Moody's and S&P (and any Substitute Rating Agency in lieu of Moody's or S&P in
the event either of such parties shall not rate the AMPS) advise the Fund in
writing that such adjustment, modification, alteration or change will not
adversely affect their then-current ratings on the AMPS.
Restrictions on Dividends and Other Payments. For so long as any AMPS are
outstanding, the Fund will not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or options, warrants or rights to subscribe for or purchase, common
shares or other shares, if any, ranking junior to AMPS as to dividends or upon
liquidation) in respect of common shares or any other shares of the Fund ranking
junior to or on a parity with AMPS as to dividends or upon liquidation, or call
for redemption, redeem, purchase or otherwise acquire for consideration any
common shares or any other such junior shares (except by conversion into or
exchange for shares of the Fund ranking junior to AMPS as to dividends and upon
liquidation) or any such parity shares (except by conversion into or exchange
for shares of the Fund ranking junior to or on a parity with AMPS as to
dividends and upon liquidation), unless (A) immediately after such transaction,
the Fund would have S&P Eligible Assets and Moody's Eligible Assets each with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount, and the 1940 Act AMPS Asset Coverage (see "Asset Maintenance" and
"Redemption" below) would be satisfied, (B) full cumulative dividends on AMPS
due on or prior to the date
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of the transaction have been declared and paid or shall have been declared and
sufficient funds for the payment thereof deposited with the Auction Agent, (C)
any Additional Dividend required to be paid on or before the date of such
declaration or payment has been paid and (D) the Fund has redeemed the full
number of AMPS required to be redeemed by any provision for mandatory redemption
contained in the Certificate of Designation.
ASSET MAINTENANCE
1940 Act AMPS Asset Coverage. The Fund will be required under the
Certificate of Designation to maintain, with respect to AMPS, as of the last
Business Day of each month in which any AMPS are outstanding, asset coverage of
at least 200% with respect to senior securities which are shares, including the
AMPS (or such other asset coverage as in the future may be specified in or under
the 1940 Act as the minimum asset coverage for senior securities which are stock
of a closed-end investment company as a condition of paying dividends on its
common stock) ("1940 Act AMPS Asset Coverage"). If the Fund fails to maintain
1940 Act AMPS Asset Coverage and such failure is not cured as of the last
Business Day of the following month (the "1940 Act Cure Date"), the Fund will be
required under certain circumstances to redeem certain of the AMPS. See
"Redemption" in the prospectus and below.
AMPS Basic Maintenance Amount. So long as AMPS are outstanding, the Fund
will be required under the Certificate of Designation to maintain as of each
Business Day (a "Valuation Date") S&P Eligible Assets and Moody's Eligible
Assets each having in the aggregate a Discounted Value at least equal to the
AMPS Basic Maintenance Amount. If the Fund fails to meet such requirement as of
any Valuation Date and such failure is not cured on or before the sixth Business
Day after such Valuation Date (the "AMPS Basic Maintenance Cure Date"), the Fund
will be required under certain circumstances to redeem certain of the AMPS. Upon
any failure to maintain the required Discounted Value, the Fund will use its
best efforts to alter the composition of its portfolio to reattain a Discounted
Value at least equal to the AMPS Basic Maintenance Amount on or prior to the
AMPS Basic Maintenance Cure Date. See "Redemption" in the prospectus and below.
The AMPS Basic Maintenance Amount as of any Valuation Date is defined as
the dollar amount equal to (i) the sum of (A) the product of the number of AMPS
outstanding on such Valuation Date multiplied by the sum of $25,000 and any
applicable redemption premium attributable to the designation of a Premium Call
Period; (B) the aggregate amount of cash dividends (whether or not earned or
declared) that will have accumulated for each share of AMPS outstanding to (but
not including) the end of the current Dividend Period that follows such
Valuation Date in the event the then-current Dividend Period will end within 49
calendar days of such Valuation Date or through the 49th day after such
Valuation Date in the event the then-current Dividend Period for the AMPS will
not end within 49 calendar days of such Valuation Date; (C) in the event the
then-current Dividend Period will end within 49 calendar days of such Valuation
Date, the aggregate amount of cash dividends that would accumulate at the
Maximum Applicable Rate applicable to a Dividend Period of 28 or fewer days on
any AMPS outstanding from the end of such Dividend Period through the 49th day
after such Valuation Date, multiplied by the larger of the Moody's Volatility
Factor and the S&P Volatility Factor determined from time to time by Moody's and
S&P, respectively (except that if such Valuation Date occurs during a
Non-Payment Period, the cash dividend for purposes of calculation would
accumulate at the then-current Non-Payment Period Rate); (D) the amount of
anticipated Fund expenses for the 90 days subsequent to such Valuation Date
(including any premiums payable with respect to a Policy); (E) the amount of the
Fund's Maximum Potential Additional Dividend Liability as of such Valuation
Date; and (F) any current liabilities as of such Valuation Date to the extent
not reflected in any of (i)(A) through (i)(E) (including, without limitation,
and immediately upon determination, any amounts due and payable by the Fund
pursuant to repurchase agreements, any amounts payable for Florida Municipal
Bonds or Municipal Bonds purchased as of such Valuation Date) less (ii) either
(A) the Discounted Value of any Fund assets, or (B) the face value of any of the
Fund's assets if such assets mature prior to or on the date of redemption of
AMPS or payment of a liability and are either securities issued or guaranteed by
the United States Government or Deposit Securities, in both cases irrevocably
deposited by the Fund for the payment of the amount needed to redeem AMPS
subject to redemption or to satisfy any of (i)(B) through (i)(F). For
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Moody's and S&P the Fund shall include as a liability an amount calculated
semi-annually equal to 150% of the estimated cost of obtaining other insurance
guaranteeing the timely payment of interest on a Moody's Eligible Asset or S&P
Eligible Asset and principal thereof to maturity with respect to Moody's
Eligible Assets and S&P Eligible Assets that (i) are covered by a Policy which
provides the Fund with the option to obtain such other insurance and (ii) are
discounted by a Moody's Discount Factor or S&P Discount Factor, as the case may
be, determined by reference to the insurance claims-paying ability rating of the
issuer of such Policy. For purposes of the foregoing, "Maximum Potential
Additional Dividend Liability," as of any Valuation Date, means the aggregate
amount of Additional Dividends that would be due if the Fund were to make
Retroactive Taxable Allocations, with respect to any fiscal year, estimated
based upon dividends paid and the amount of undistributed realized net capital
gains and other taxable income earned by the Fund, as of the end of the calendar
month immediately preceding such Valuation Date and assuming such Additional
Dividends are fully taxable.
The Discount Factors and guidelines for determining the market value of the
Fund's portfolio holdings have been based on criteria established in connection
with rating the AMPS. These factors include, but are not limited to, the
sensitivity of the market value of the relevant asset to changes in interest
rates, the liquidity and depth of the market for the relevant asset, the credit
quality of the relevant asset (for example, the lower the rating of a debt
obligation, the higher the related discount factor) and the frequency with which
the relevant asset is marked to market. In no event shall the Discounted Value
of any asset of the Fund exceed its unpaid principal balance or face amount as
of the date of calculation. The Discount Factor relating to any asset of the
Fund and the AMPS Basic Maintenance Amount, the assets eligible for inclusion in
the calculation of the Discounted Value of the Fund's portfolio and certain
definitions and methods of calculation relating thereto may be changed from time
to time by the Fund, without shareholder approval, but only in the event the
Fund receives written confirmation from S&P, Moody's and any Substitute Rating
Agency that any such changes would not impair the ratings then assigned to the
AMPS by S&P or Moody's or any Substitute Rating Agency.
On or before the third Business Day after a Valuation Date on which the
Fund fails to maintain S&P Eligible Assets and Moody's Eligible Assets each with
an aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount, the Fund is required to deliver to the Auction Agent,
Moody's and S&P a report with respect to the calculation of the AMPS Basic
Maintenance Amount and the value of its portfolio holdings as of the date of
such failure (an "AMPS Basic Maintenance Report"). Additionally, on or before
the third Business Day after the first day of a Special Dividend Period, the
Fund will deliver an AMPS Basic Maintenance Report to S&P and the Auction Agent.
The Fund also will deliver an AMPS Basic Maintenance Report as of the
twenty-fifth day of the last month of each fiscal quarter of the Fund (or, if
such day is not a Business Day, the next succeeding Business Day) on or before
the third Business Day after such day. Within ten Business Days after delivery
of such report relating to the twenty-fifth day of the last month of each fiscal
quarter of the Fund, the Fund will deliver a letter prepared by the Fund's
independent accountants regarding the accuracy of the calculations made by the
Fund in its most recent AMPS Basic Maintenance Report. Also, on or before 5:00
p.m., Eastern time, on the first Business Day after common shares are
repurchased by the Fund, the Fund will complete and deliver to S&P and Moody's
an AMPS Basic Maintenance Report as of the close of business on such date that
common shares are repurchased. If any such letter prepared by the Fund's
independent accountants shows that an error was made in the most recent AMPS
Basic Maintenance Report, the calculation or determination made by the Fund's
independent accountants will be conclusive and binding on the Fund.
REDEMPTION
Mandatory Redemption. The number of AMPS to be redeemed will be equal to
the lesser of (a) the minimum number of AMPS the redemption of which, if deemed
to have occurred immediately prior to the opening of business on the Cure Date,
together with all other preferred shares subject to redemption or retirement,
would result in the Fund having S&P Eligible Assets and Moody's Eligible Assets
each with an aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount or satisfaction of the 1940 Act AMPS Asset Coverage, as the
case may be, on such Cure Date (provided that, if there is no
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such minimum number of shares the redemption of which would have such result,
all AMPS then outstanding will be redeemed), and (b) the maximum number of AMPS,
together with all other preferred shares subject to redemption or retirement,
that can be redeemed out of funds expected to be legally available therefor on
such redemption date. In determining the number of AMPS required to be redeemed
in accordance with the foregoing, the Fund shall allocate the number required to
be redeemed which would result in the Fund having S&P Eligible Assets and
Moody's Eligible Assets each with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount or satisfaction of the 1940 Act
AMPS Asset Coverage, as the case may be, pro rata among AMPS and other preferred
shares subject to redemption pursuant to provisions similar to those set forth
below; provided that, AMPS which may not be redeemed at the option of the Fund
due to the designation of a Non-Call Period applicable to such shares (A) will
be subject to mandatory redemption only to the extent that other shares are not
available to satisfy the number of shares required to be redeemed and (B) will
be selected for redemption in an ascending order of outstanding number of days
in the Non-Call Period (with shares with the lowest number of days to be
redeemed first) and by lot in the event of shares having an equal number of days
in such Non-Call Period. The Fund is required to effect such a mandatory
redemption not later than 35 days after such Cure Date, except that if the Fund
does not have funds legally available for the redemption of all of the required
number of AMPS which are subject to mandatory redemption or the Fund otherwise
is unable to effect such redemption on or prior to 35 days after such Cure Date,
the Fund will redeem those AMPS which it was unable to redeem on the earliest
practicable date on which it is able to effect such redemption.
Notice of Redemption. If AMPS are to be redeemed, a notice of redemption
will be mailed to each record holder of such AMPS (initially Cede as nominee of
the Securities Depository) and to the Auction Agent not less than 17 nor more
than 60 days prior to the date fixed for the redemption thereof. Each notice of
redemption will include a statement setting forth: (i) the redemption date, (ii)
the aggregate number of AMPS to be redeemed, (iii) the redemption price, (iv)
the place or places where AMPS are to be surrendered for payment of the
redemption price, (v) a statement that dividends on the shares to be redeemed
will cease to accumulate on such redemption date (except that holders may be
entitled to Additional Dividends) and (vi) the provision of the Certificate of
Designation pursuant to which such shares are being redeemed. The notice also
will be published in The Wall Street Journal. No defect in the notice of
redemption or in the mailing or publication thereof will affect the validity of
the redemption proceedings, except as required by applicable law.
In the event that less than all of the outstanding AMPS are to be redeemed,
the shares to be redeemed will be selected by lot or such other method as the
Fund shall deem fair and equitable, and the results thereof will be communicated
to the Auction Agent. The Auction Agent will give notice to the Securities
Depository, whose nominee will be the record holder of all AMPS, and the
Securities Depository will determine the number of shares to be redeemed from
the account of the Agent Member of each Existing Holder. Each Agent Member will
determine the number of shares to be redeemed from the account of each Existing
Holder for which it acts as agent. An Agent Member may select for redemption
shares from the accounts of some Existing Holders without selecting for
redemption any shares from the accounts of other Existing Holders.
Notwithstanding the foregoing, if neither the Securities Depository nor its
nominee is the record holder of all of the shares of such series, the particular
shares to be redeemed shall be selected by the Fund by lot or by such other
method as the Fund shall deem fair and equitable.
If the Fund gives notice of redemption, and concurrently or thereafter
deposits in trust with the Auction Agent, or segregates in an account at the
Fund's custodian bank for the benefit of the Auction Agent, Deposit
Securities(with a right of substitution) having an aggregate Discounted Value
(utilizing in the case of S&P and S&P Exposure Period of 22 Business Days) equal
to the redemption payment for the AMPS as to which notice of redemption has been
given, with irrevocable instructions and authority to pay the redemption price
to the record holders thereof, then upon the date of such deposit or, if no such
deposit is made, upon such date fixed for redemption (unless the Fund shall
default in making payment of the redemption price), all rights of the holders of
such shares called for redemption will cease and terminate, except the right of
such holders to receive the redemption price thereof and any Additional
Dividends, but without interest, and such shares no longer will be deemed to be
outstanding. The Fund will be entitled to receive, from time to time, the
interest,
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if any, earned on such Deposit Securities deposited with the Auction Agent, and
the holders of any shares so redeemed will have no claim to any such interest.
Any funds so deposited which are unclaimed at the end of one year from such
redemption date will be repaid, upon demand, to the Fund, after which the
holders of the AMPS of such series so called for redemption may look only to the
Fund for payment thereof.
So long as any AMPS are held of record by the nominee of the Securities
Depository (initially Cede), the redemption price for such shares will be paid
on the redemption date to the nominee of the Securities Depository. The
Securities Depository's normal procedures now provide for it to distribute the
amount of the redemption price to Agent Members who, in turn, are expected to
distribute such funds to the persons for whom they are acting as agent.
Notwithstanding the provisions for redemption described above, no AMPS
shall be subject to optional redemption (i) unless all dividends in arrears on
the outstanding AMPS, and all capital shares of the Fund ranking on a parity
with the AMPS with respect to the payment of dividends or upon liquidation, have
been or are being contemporaneously paid or declared and set aside for payment
and (ii) if redemption thereof would result in the Fund's failure to maintain
Moody's Eligible Assets or S&P Eligible Assets with an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount.
VOTING RIGHTS
In connection with the election of the Fund's Trustees, holders of AMPS and
any other preferred shares, voting as a separate class, shall be entitled at all
times to elect two of the Fund's Trustees, and the remaining Trustees will be
elected by holders of common shares and AMPS and any other preferred shares,
voting together as a single class. In addition, if at any time dividends on
outstanding AMPS shall be unpaid in an amount equal to at least two full years'
dividends thereon or if at any time holders of any preferred shares are
entitled, together with the holders of AMPS, to elect a majority of the Trustees
of the Fund under the 1940 Act, then the number of Trustees constituting the
Board of Trustees automatically shall be increased by the smallest number that,
when added to the two Trustees elected exclusively by the holders of AMPS and
any other preferred shares as described above, would constitute a majority of
the Board of Trustees as so increased by such smallest number, and at a special
meeting of shareholders which will be called and held as soon as practicable,
and at all subsequent meetings at which Trustees are to be elected, the holders
of AMPS and any other preferred shares, voting as a separate class, will be
entitled to elect the smallest number of additional Trustees that, together with
the two Trustees which such holders in any event will be entitled to elect,
constitutes a majority of the total number of Trustees of the Fund as so
increased. The terms of office of the persons who are Trustees at the time of
that election will continue. If the Fund thereafter shall pay, or declare and
set apart for payment in full, all dividends payable on all outstanding AMPS and
any other preferred shares for all past Dividend Periods, the additional voting
rights of the holders of AMPS and any other preferred shares as described above
shall cease, and the terms of office of all of the additional Trustees elected
by the holders of AMPS and any other preferred shares (but not of the Trustees
with respect to whose election the holders of common shares were entitled to
vote or the two Trustees the holders of AMPS and any other preferred shares have
the right to elect in any event) will terminate automatically.
The affirmative vote of a majority of the votes entitled to be cast by
holders of outstanding AMPS and any other preferred shares, voting as a separate
class, will be required to (i) authorize, create or issue any class or series of
shares ranking prior to the AMPS or any other series of preferred shares with
respect to the payment of dividends or the distribution of assets on
liquidation, or (ii) amend, alter or repeal the provisions of the Declaration of
Trust, whether by merger, consolidation or otherwise, so as to adversely affect
any of the contract rights expressly set forth in the Declaration of Trust of
holders of AMPS or any other preferred shares. To the extent permitted under the
1940 Act, in the event shares of more than one series of AMPS are outstanding,
the Fund shall not approve any of the actions set forth in clause (i) or (ii)
which adversely affects the contract rights expressly set forth in the
Declaration of Trust of a holder of shares of a series of AMPS differently than
those of a holder of shares of any other series of AMPS without the affirmative
vote of at least a majority of votes entitled to be cast by holders of the AMPS
of each series adversely affected and outstanding at such time (each such
adversely affected series voting separately as a class). The Board of Trustees,
however, without shareholder approval, may amend, alter or repeal any or all of
the various rating
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agency guidelines described herein in the event the Fund receives confirmation
from the rating agencies that any such amendment, alteration or repeal would not
impair the ratings then assigned to AMPS. Unless a higher percentage is provided
for under "Description of Capital Shares -- Certain Provisions of the
Declaration of Trust" in the prospectus, the affirmative vote of a majority of
the votes entitled to be cast by holders of outstanding AMPS and any other
preferred shares, voting as a separate class, will be required to approve any
plan of reorganization (including bankruptcy proceedings) adversely affecting
such shares or any action requiring a vote of security holders under Section
13(a) of the 1940 Act including, among other things, changes in the Fund's
investment objective or changes in the investment restrictions described as
fundamental policies under "Investment Objective and Policies." The class vote
of holders of AMPS and any other preferred shares described above in each case
will be in addition to a separate vote of the requisite percentage of shares of
common shares and shares of AMPS and any other preferred shares, voting together
as a single class, necessary to authorize the action in question.
The foregoing voting provisions will not apply to any AMPS if, at or prior
to the time when the act with respect to which such vote otherwise would be
required shall be effected, such shares shall have been (i) redeemed or (ii)
called for redemption and sufficient funds shall have been deposited in trust to
effect such redemption.
THE AUCTION
AUCTION AGENT AGREEMENT
The Auction Agent will act as agent for the Fund in connection with
Auctions. In the absence of bad faith or negligence on its part, the Auction
Agent will not be liable for any action taken, suffered or omitted, or for any
error of judgment made, by it in the performance of its duties under the Auction
Agent Agreement, and will not be liable for any error of judgment made in good
faith unless the Auction Agent shall have been negligent in ascertaining the
pertinent facts. Pursuant to the Auction Agent Agreement, the Fund is required
to indemnify the Auction Agent for certain losses and liabilities incurred by
the Auction Agent without negligence or bad faith on its part in connection with
the performance of its duties under such agreement.
The Auction Agent may terminate the Auction Agent Agreement upon notice to
the Fund, which termination may be no earlier than 60 days following delivery of
such notice. If the Auction Agent resigns, the Fund will use its best efforts to
enter into an agreement with a successor Auction Agent containing substantially
the same terms and conditions as the Auction Agent Agreement. The Fund may
terminate the Auction Agent Agreement, provided that prior to such termination
the Fund shall have entered into such an agreement with respect thereto with a
successor Auction Agent.
BROKER-DEALER AGREEMENTS
The Auctions require the participation of one or more broker-dealers. A
Broker-Dealer Agreement may be terminated by the Auction Agent or a
Broker-Dealer on five days' notice to the other party, provided that the
Broker-Dealer Agreement with Merrill Lynch may not be terminated without the
prior written consent of the Fund, which consent may not be unreasonably
withheld.
AUCTION PROCEDURES
The Auction Procedures are set forth in Appendix E to this statement of
additional information. The Settlement Procedures to be used with respect to
Auctions are set forth in Appendix D to this statement of additional
information.
16
<PAGE> 69
RATING AGENCY GUIDELINES
S&P AAA RATING GUIDELINES
The Discounted Value of the Fund's S&P Eligible Assets is calculated on
each Valuation Date. See "Description of AMPS -- Asset Maintenance -- AMPS Basic
Maintenance Amount." S&P Eligible Assets include cash, Receivables for Florida
Municipal Bonds Sold (as defined below) and Florida Municipal Bonds or Municipal
Bonds eligible for consideration under S&P's current guidelines. For purposes of
calculating the Discounted Value of the Fund's portfolio under current S&P
guidelines, the fair market value of Florida Municipal Bonds or Municipal Bonds
eligible for consideration under such guidelines must be discounted by the
applicable S&P Discount Factor set forth in the table below. The Discounted
Value of a Florida Municipal Bond or Municipal Bond eligible for consideration
under S&P guidelines is the fair market value thereof divided by the S&P
Discount Factor. The S&P Discount Factor used to discount a particular Florida
Municipal Bond or Municipal Bond will be determined by reference to (a)(i) the
rating by S&P, Moody's or Fitch on such Bond or (ii) in the event the Florida
Municipal Bond is insured under a Policy and the terms of the Policy permit the
Fund, at its option, to obtain other permanent insurance guaranteeing the timely
payment of interest on such Florida Municipal Bond and principal thereof to
maturity, the S&P insurance claims-paying ability rating of the issuer of the
Policy or (iii) in the event the Florida Municipal Bond is insured under an
insurance policy which guarantees the timely payment of interest on such Florida
Municipal Bond and principal thereof to maturity, the S&P insurance
claims-paying ability rating of the issuer of the insurance policy and (b) the
S&P Exposure Period. The S&P Exposure Period is the maximum period of time
following a Valuation Date, including the Valuation Date and the AMPS Basic
Maintenance Cure Date, that the Fund has to cure any failure to maintain, as of
such Valuation Date, a Discounted Value for its portfolio at least equal to the
AMPS Basic Maintenance Amount.
S&P Discount Factors applicable to Florida Municipal Bonds for a range of
S&P Exposure Periods are set forth below:
<TABLE>
<CAPTION>
S&P DISCOUNT FACTORS
RATING C
---------------------
EXPOSURE PERIOD AAA AA A BBB
--------------- --- --- --- ---
<S> <C> <C> <C> <C>
45 Business Days............................................ 205% 210% 225% 265%
25 Business Days............................................ 185 190 205 245
10 Business Days............................................ 170 175 190 230
7 Business Days............................................ 165 170 185 225
3 Business Days............................................ 145 150 165 205
</TABLE>
Since the S&P Exposure Period currently applicable to the Fund is seven
Business Days, the S&P Discount Factors currently applicable to Municipal Bonds
eligible for consideration under S&P guidelines will be determined by reference
to the factors set forth opposite the exposure period line entitled "7 Business
Days." Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
Florida Municipal Bonds will be 115%, so long as such Florida Municipal Bonds
are rated A-1+ or SP-1+ by S&P and mature or have a demand feature exercisable
in 30 days or less, or 120% so long as such Florida Municipal Bonds are rated
A-1 or SP-1 by S&P and mature or have a demand feature exercisable in 30 days or
less, or 125% if such Florida Municipal Bonds are not rated by S&P but are rated
VMIG-1, P-1 or MIG-1 by Moody's or F-1+ by Fitch; provided, however, such
short-term Florida Municipal Bonds rated by Moody's or Fitch but not rated by
S&P having a demand feature exercisable in 30 days or less must be backed by a
letter of credit, liquidity facility or guarantee from a bank or other financial
institution having a short-term rating of at least A-1+ from S&P; and further
provided that such short-term Florida Municipal Bonds rated by Moody's or Fitch
but not rated by S&P may comprise no more than 50% of short-term Florida
Municipal Bonds that qualify as S&P Eligible Assets, (ii) the S&P Discount
Factor for Receivables for Florida Municipal Bonds Sold that are due in more
than five Business Days from such Valuation Date will be the S&P Discount Factor
applicable to the Florida Municipal Bonds sold, and (iii) no S&P Discount Factor
will be applied to cash or to Receivables for Florida Municipal Bonds Sold if
such receivables are due within five Business Days of such Valuation Date.
17
<PAGE> 70
"Receivables for Florida Municipal Bonds Sold," for purposes of calculating S&P
Eligible Assets as of any Valuation Date, means the book value of receivables
for Florida Municipal Bonds sold as of or prior to such Valuation Date. The Fund
may adopt S&P Discount Factors for Municipal Bonds other than Florida Municipal
Bonds provided that S&P advises the Fund in writing that such action will not
adversely affect its then current rating on the AMPS. For purposes of the
foregoing, Anticipation Notes rated SP-1 or, if not rated by S&P, rated VMIG-1
by Moody's or F-1+ by Fitch, which do not mature or have a demand feature
exercisable in 30 days and which do not have a long-term rating, shall be
considered to be short-term Florida Municipal Bonds.
The S&P guidelines require certain minimum issue size and geographical
diversification and impose other requirements for purposes of determining S&P
Eligible Assets. In order to be considered S&P Eligible Assets, Municipal Bonds
must:
(i) be interest bearing and pay interest at least semi-annually;
(ii) be payable with respect to principal and interest in U.S.
dollars;
(iii) be publicly rated BBB or higher by S&P or, except in the case of
Anticipation Notes that are grant anticipation notes or bond anticipation
notes, which must be rated by S&P to be included in S&P Eligible Assets, if
not rated by S&P but rated by Moody's or Fitch, be rated at least A by
Moody's or Fitch (provided that such Moody's-rated or Fitch-rated Florida
Municipal Bonds will be included in S&P Eligible Assets only to the extent
the fair market value of such Florida Municipal Bonds does not exceed 50%
of the aggregate fair market value of the S&P Eligible Assets. For purposes
of determining the S&P Discount Factors applicable to any such
Moody's-rated or Fitch-rated Municipal Bonds, such Florida Municipal Bonds
will be deemed to have an S&P rating that is one full rating category lower
than its Moody's rating or Fitch rating);
(iv) not be subject to a covered call or covered put option written by
the Fund;
(v) except for inverse floating obligations, not be part of a private
placement of Municipal Bonds; and
(vi) except for inverse floating obligations, be part of an issue with
an original issue size of at least $10 million or, if of an issue with an
original issue size below $10 million (but in no event below $5 million),
be either (a) issued by an issuer with a total of at least $25 million of
securities outstanding or (b) rated at least A by S&P with all such Florida
Municipal Bonds not constituting more than 20% of the aggregate market
value of S&P Eligible Assets.
Notwithstanding the foregoing:
(i) Florida Municipal Bonds of any one issuer or guarantor (excluding
bond insurers) will be considered S&P Eligible Assets only to the extent
the fair market value of such Bonds does not exceed 10% of the aggregate
fair market value of the S&P Eligible Assets, provided that 2% is added to
the applicable S&P Discount Factor for every 1% by which the fair market
value of such Florida Municipal Bonds exceeds 5% of the aggregate fair
market value of the S&P Eligible Assets;
(ii) Florida Municipal Bonds of any one issue type category (as
described below) will be considered S&P Eligible Assets only to the extent
the market value of such Florida Municipal Bonds does not exceed 25% of the
aggregate market value of S&P Eligible Assets, except that Florida
Municipal Bonds falling within the utility issue type category will be
broken down into three sub-categories (as described below) and such Florida
Municipal Bonds will be considered S&P Eligible Assets to the extent the
market value of such Florida Municipal Bonds in each such sub-category does
not exceed 25% of the aggregate market value of S&P Eligible Assets, except
that Florida Municipal Bonds falling within the transportation issue type
category will be broken down into two sub-categories (as described below)
and such Florida Municipal Bonds will be considered S&P Eligible Assets to
the extent the market value of such Bonds in both sub-categories combined
(as described below) does not exceed 40% of the aggregate market value of
S&P Eligible Assets and except that Florida Municipal Bonds falling within
the general obligation issue type category will be considered S&P Eligible
Assets to the extent the market value of such Florida
18
<PAGE> 71
Municipal Bonds does not exceed 50% of the aggregate market value of S&P
Eligible Assets. For purposes of the issue type category requirement
described above, Florida Municipal Bonds will be classified within one of
the following categories: health care issues, housing issues, educational
facilities issues, student loan issues, transportation issues, industrial
development bond issues, utility issues, general obligation issues, lease
obligations, escrowed bonds and other issues not falling within one of the
aforementioned categories. The general obligation issue type category
includes any issuer that is directly or indirectly guaranteed by the State
of Florida or its political subdivisions. Utility issuers are included in
the general obligation issue type category if the issuer is directly or
indirectly guaranteed by the State of Florida or its political
subdivisions. For purposes of the issue type category requirement described
above, Florida Municipal Bonds in the utility issue type category will be
classified within one of the three following sub-categories: (1) electric,
gas and combination issues (if the combination issue includes an electric
issue), (2) water and sewer utilities and combination issues (if the
combination issue does not include an electric issue), and (3) irrigation,
resource recovery, solid waste and other utilities, provided that Florida
Municipal Bonds included in this sub-category (iii) must be rated by S&P in
order to be included in S&P Eligible Assets. For purposes of the issue type
category requirement described above, Florida Municipal Bonds in the
transportation issue type category will be classified within one of the two
following sub-categories: (i) streets and highways, toll roads, bridges and
tunnels, airports and multi-purpose port authorities (multiple revenue
streams generated by toll roads, airports, real estate, bridges), (ii) mass
transit, parking, seaports and others. Exposure to transportation
sub-category (1) in the preceding sentence is limited to 25% of the
aggregate market value of S&P Eligible Assets, provided, however, exposure
to transportation sub-category (2) in the preceding sentence can exceed the
25% limit to the extent that exposure to transportation sub-category (2) is
reduced, for a total exposure up to and not exceeding 40% of the aggregate
market value of S&P Eligible Assets for the transportation issue type
category; and
(iii) Florida Municipal Bonds which are escrow bonds or defeased bonds
may compose up to 100% of the aggregate market value of S&P Eligible Assets
if such Florida Municipal Bonds initially are assigned a rating by S&P in
accordance with S&P's legal defeasance criteria or rerated by S&P as
economic defeased escrow bonds and assigned an AAA rating. Florida
Municipal Bonds may be rated as escrow bonds by another nationally
recognized rating agency or rerated as an escrow bond and assigned the
equivalent of an S&P AAA rating, provided that such equivalent rated
Florida Municipal Bonds are limited to 50% of the aggregate market value of
S&P Eligible Assets and are deemed to have an AA S&P rating for purposes of
determining the S&P Discount Factor applicable to such Florida Municipal
Bonds. The limitations on Florida Municipal Bonds of any one issuer in
clause (i) above is not applicable to escrow bonds, however, economically
defeased bonds that are either initially rated or rerated by S&P or another
nationally recognized rating agency and assigned the same rating level as
the issuer of the Florida Municipal Bonds will remain in its original issue
type category set forth in clause (ii) above. Florida Municipal Bonds that
are legally defeased and secured by securities issued or guaranteed by the
United States Government are not required to meet the minimum issuance size
requirement set forth above.
The Fund may include Municipal Bonds other than Florida Municipal Bonds as
S&P Eligible Assets pursuant to guidelines and restrictions to be established by
S&P, provided that S&P advises the Fund in writing that such action will not
adversely affect its then-current rating on the AMPS.
As discussed in the prospectus, the Fund may engage in options or futures
transactions. For so long as any AMPS are rated by S&P, the Fund will not
purchase or sell financial futures contracts, write, purchase or sell options on
financial futures contracts or write put options (except covered put options) or
call options (except covered call options) on portfolio securities unless it
receives written confirmation from S&P that engaging in such transactions will
not impair the ratings then assigned to the AMPS by S&P, except that the Fund
may purchase or sell financial futures contracts based on the Bond Buyer
Municipal Bond Index (the "Municipal Index") or United States Treasury Bonds or
Notes ("Treasury Bonds") and write, purchase or sell put and
19
<PAGE> 72
call options on such contracts (collectively "S&P Hedging Transactions"),
subject to the following limitations:
(i) the Fund will not engage in any S&P Hedging Transaction based on
the Municipal Index (other than transactions that terminate a financial
futures contract or option held by the Fund by the Fund's taking an
opposite position thereto ("Closing Transactions")), that would cause the
Fund at the time of such transaction to own or have sold the least of (A)
more than 1,000 outstanding financial futures contracts based on the
Municipal Index, (B) outstanding financial futures contracts based on the
Municipal Index exceeding in number 25% of the quotient of the fair market
value of the Fund's total assets divided by $1,000 or (C) outstanding
financial futures contracts based on the Municipal Index exceeding in
number 10% of the average number of daily traded financial futures
contracts based on the Municipal Index in the 30 days preceding the time of
effecting such transaction as reported by The Wall Street Journal;
(ii) the Fund will not engage in any S&P Hedging Transaction based on
Treasury Bonds (other than Closing Transactions) that would cause the Fund
at the time of such transaction to own or have sold the lesser of (A)
outstanding financial futures contracts based on Treasury Bonds exceeding
in number 50% of the quotient of the fair market value of the Fund's total
assets divided by $100,000 ($200,000 in the case of the two-year United
States Treasury Note) or (B) outstanding financial futures contracts based
on Treasury Bonds exceeding in number 10% of the average number of daily
traded financial futures contracts based on Treasury Bonds in the 30 days
preceding the time of effecting such transaction as reported by The Wall
Street Journal;
(iii) the Fund will engage in Closing Transactions to close out any
outstanding financial futures contract that the Fund owns or has sold or
any outstanding option thereon owned by the Fund in the event (A) the Fund
does not have S&P Eligible Assets with an aggregate Discounted Value equal
to or greater than the AMPS Basic Maintenance Amount on two consecutive
Valuation Dates and (B) the Fund is required to pay Variation Margin on the
second such Valuation Date;
(iv) the Fund will engage in a Closing Transaction to close out any
outstanding financial futures contract or option thereon in the month prior
to the delivery month under the terms of such financial futures contract or
option thereon unless the Fund holds the securities deliverable under such
terms; and
(v) when the Fund writes a financial futures contract or an option
thereon, it will either maintain an amount of cash, cash equivalents or
high grade (rated A or better by S&P) fixed-income securities in a
segregated account with the Fund's custodian, so that the amount so
segregated plus the amount of Initial Margin and Variation Margin held in
the account of or on behalf of the Fund's broker with respect to such
financial futures contract or option equals the fair market value of the
financial futures contract or option, or, in the event the Fund writes a
financial futures contract or option thereon that requires delivery of an
underlying security, it shall hold such underlying security in its
portfolio.
For purposes of determining whether the Fund has S&P Eligible Assets with a
Discounted Value that equals or exceeds the AMPS Basic Maintenance Amount, the
Discounted Value of cash or securities held for the payment of Initial Margin or
Variation Margin shall be zero and the aggregate Discounted Value of S&P
Eligible Assets shall be reduced by an amount equal to (i) 30% of the aggregate
settlement value, as marked to market, of any outstanding financial futures
contracts based on the Municipal Index that are owned by the Fund plus (ii) 25%
of the aggregate settlement value, as marked to market, of any outstanding
financial futures contracts based on Treasury Bonds which contracts are owned by
the Fund.
MOODY'S "aaa" Rating Guidelines
The Discounted Value of the Fund's Moody's Eligible Assets is calculated on
each Valuation Date. See "Description of AMPS -- Asset Maintenance -- AMPS Basic
Maintenance Amount" herein. Moody's Eligible Assets include cash, Receivables
for Florida Municipal Bonds or Municipal Bonds (as defined below), and Florida
Municipal Bonds or Municipal Bonds eligible for consideration under Moody's
guidelines. For purposes of calculating the Discounted Value of the Fund's
portfolio under current Moody's guidelines,
20
<PAGE> 73
the fair market value of Municipal Bonds eligible for consideration under such
guidelines must be discounted by the applicable Moody's Discount Factor set
forth in the table below. The Discounted Value of a Municipal Bond eligible for
consideration under Moody's guidelines is the lower of par and the quotient of
the fair market value thereof divided by the Moody's Discount Factor. The
Moody's Discount Factor used to discount a particular Florida Municipal Bond or
Municipal Bond will be determined by reference to (a)(i) the rating by Moody's
or S&P on such Bond or (ii) in the event the Moody's Eligible Asset is insured
under a Policy and the terms of the Policy permit the Fund, at its option, to
obtain other insurance guaranteeing the timely payment of interest on such
Moody's Eligible Asset and principal thereof to maturity, the Moody's insurance
claims-paying ability rating of the issuer of the Policy or (iii) in the event
the Moody's Eligible Asset is insured under an insurance policy which guarantees
the timely payment of interest on such Moody's Eligible Asset and principal
thereof to maturity, the Moody's insurance claims-paying ability rating of the
issuer of the insurance policy (provided that for purposes of clauses (ii) and
(iii) if the insurance claims-paying ability of an issuer of a Policy or
insurance policy is not rated by Moody's but is rated by S&P, such issuer shall
be deemed to have a Moody's insurance claims-paying ability rating which is two
full categories lower than the S&P insurance claims-paying ability rating) and
(b) the Moody's Exposure Period. Moody's Discount Factors for a range of Moody's
Exposure Periods are set forth below:
<TABLE>
<CAPTION>
Moody's Discount Factors Rating Category
----------------------------------------------------------------
VMIG-
MOODY'S EXPOSURE PERIOD Aaa(1) Aa(1) A(1) Baa(1) Other(2) 1(3) SP-1+(3)
----------------------- ------ ----- ---- ------ -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks or less................................ 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but greater than seven weeks... 154 164 173 205 235 137 149
9 weeks or less but greater than eight weeks... 158 169 179 209 242 138 150
</TABLE>
- ---------------
(1) Moody's rating.
(2) Florida Municipal Bonds and Municipal Bonds not rated by Moody's but rated
BBB or BBB+ by S&P.
(3) Florida Municipal Bonds and Municipal Bonds rated MIG-1, VMIG-1 or P-1 or,
if not rated by Moody's, rated SP-1+ or A-1+ by S&P which do not mature or
have a demand feature at par exercisable within the Moody's Exposure Period
and which do not have a long-term rating. For the purposes of the definition
of Moody's Eligible Assets, these securities will have an assumed rating of
A by Moody's.
provided, however, in the event a Moody's Discount Factor applicable to a
Moody's Eligible Asset is determined by reference to an insurance claims-paying
ability rating in accordance with clause (a)(ii) or (a)(iii), such Moody's
Discount Factor shall be increased by an amount equal to 50% of the difference
between (a) the percentage set forth in the foregoing table under the applicable
rating category and (b) the percentage set forth in the foregoing table under
the rating category which is one category lower than the applicable rating
category.
Since the Moody's Exposure Period currently is 49 days, the Moody's
Discount Factors currently applicable to Municipal Bonds eligible for
consideration under Moody's guidelines will be determined by reference to the
factors set forth opposite the exposure period line entitled "7 weeks or less."
Notwithstanding the foregoing, (i) a 102% Moody's Discount Factor will be
applied to short-term Florida Municipal Bonds and short-term Municipal Bonds, so
long as such Florida Municipal Bonds and Municipal Bonds are rated at least
MIG-1, VMIG-1 or P-1 by Moody's and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and the Moody's Discount Factor
for such Bonds will be 125% if such Bonds are not rated by Moody's but are rated
A-1+, SP-1+ or AA by S&P and mature or have a demand feature at par exercisable
within the Moody's Exposure Period, and (ii) no Moody's Discount Factor will be
applied to cash or to Receivables for Florida Municipal Bonds or Municipal Bonds
Sold. "Receivables for Florida Municipal Bonds or Municipal Bonds Sold," for
purposes of calculating Moody's Eligible Assets as of any Valuation Date, means
no more than the aggregate of the following: (i) the book value of receivables
for Florida Municipal Bonds or Municipal Bonds sold as of or prior to such
Valuation Date if such receivables are due within five Business Days of such
Valuation Date, and if the trades which generated such receivables are (A)
settled through clearing house firms with respect to which the Fund has received
prior written authorization from Moody's or (B) with counterparties having a
Moody's long-term debt rating of at least Baa3; and (ii) the Moody's Discounted
Value of Florida Municipal Bonds or Municipal Bonds sold as of or prior to such
Valuation Date that generated receivables, if such receivables are due within
five Business Days of such Valuation Date but do not comply with either of
conditions (A) or (B) of the preceding clause (i).
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<PAGE> 74
The Moody's guidelines impose certain requirements as to minimum issue
size, issuer diversification and geographical concentration, as well as other
requirements for purposes of determining whether Florida Municipal Bonds or
Municipal Bonds constitute Moody's Eligible Assets, as set forth in the table
below:
<TABLE>
<CAPTION>
MAXIMUM MAXIMUM STATE
MINIMUM MAXIMUM ISSUE TYPE MAXIMUM COUNTY OR TERRITORY
ISSUE SIZE UNDERLYING CONCENTRATION CONCENTRATION CONCENTRATION
RATING ($ MILLIONS) OBLIGOR (%)(1) (%)(1)(3) (%)(1)(4) (%)(1)(5)
------ ------------ -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Aaa.................. 10 100 100 100 100
Aa................... 10 20 60 60 60
A.................... 10 10 40 40 40
Baa.................. 10 6 20 20 20
Other(2)............. 10 4 12 12 12
</TABLE>
- ---------------
(1) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category.
(2) Florida Municipal Bonds and Municipal Bonds not rated by Moody's but rated
BBB or BBB+ by S&P.
(3) Does not apply to general obligation bonds.
(4) Applicable to general obligation bonds only.
(5) Does not apply to Florida Municipal Bonds. Territorial bonds (other than
those issued by Puerto Rico and counted collectively) are each limited to
10% of Moody's Eligible Assets. For diversification purposes, Puerto Rico
will be treated as a state.
For purposes of the maximum underlying obligor requirement described above,
any Florida Municipal Bond or Municipal Bond backed by the guaranty, letter of
credit or insurance issued by a third party will be deemed to be issued by such
third party if the issuance of such third party credit is the sole determinant
of the rating on such Bond. For purposes of the issue type concentration
requirement described above, Florida Municipal Bonds and Municipal Bonds will be
classified within one of the following categories: health care issues (teaching
and non-teaching hospitals, public and private), housing issues (single- and
multi-family), educational facilities issues (public and private schools),
student loan issues, resource recovery issues, transportation issues (mass
transit, airport and highway bonds), industrial revenue/pollution control bond
issues, utility issues (including water, sewer and electricity), general
obligation issues, lease obligations/certificates of participation, escrowed
bonds and other issues ("Other Issues") not falling within one of the
aforementioned categories (includes special obligations to crossover, excise and
sales tax revenue, recreation revenue, special assessment and telephone revenue
bonds). In no event shall (a) more than 10% of Moody's Eligible Assets consist
of student loan issues, (b) more than 10% of Moody's Eligible Assets consist of
recovery issues or (c) more than 10% of Moody's Eligible Assets consist of Other
Issues.
Current Moody's guidelines also require that Florida Municipal Bonds or
Municipal Bonds constituting Moody's Eligible Assets pay interest in cash, be
publicly rated Baa or higher by Moody's or, if not rated by Moody's but rated by
S&P, that they be rated at least BBB by S&P, not have suspended ratings by
Moody's and be part of an issue of Florida Municipal Bonds or Municipal Bonds of
at least $10,000,000. For purposes of determining the Moody's Discount Factors
applicable to any such S&P-rated Florida Municipal Bonds or S&P-rated Municipal
Bonds, such Florida Municipal Bonds or Municipal Bonds (excluding any short-term
Municipal Bonds) will be deemed to have a Moody's rating that is one full rating
category lower than its S&P rating. When the Fund sells a Florida Municipal Bond
or Municipal Bond and agrees to repurchase it at a future date, the Discounted
Value of such Municipal Bond will constitute a Moody's Eligible Asset and the
amount the Fund is required to pay upon repurchase of such bond will count as a
liability for purposes of calculating the AMPS Basic Maintenance Amount. For so
long as the AMPS are rated by Moody's, the Fund will not enter into any such
reverse repurchase agreements unless it has received written confirmation from
Moody's that such transactions would not impair the rating then assigned the
AMPS by Moody's. When the Fund purchases a Florida Municipal Bond or Municipal
Bond and agrees to sell it at a future date to another party, cash receivable by
the Fund thereby will constitute a Moody's Eligible Asset if the long-term debt
of such other party is rated at least A2 by Moody's and such agreement has a
term of 30 days or less; otherwise the Discounted Value of such Bond will
constitute a Moody's Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset if it is (i) held in a margin account, (ii) subject to any
material lien, mortgage, pledge, security interest or security agreement of
22
<PAGE> 75
any kind, (iii) held for the purchase of a security pursuant to a Forward
Commitment or (iv) irrevocably deposited by the Fund for the payment of
dividends or redemption.
For so long as AMPS are rated by Moody's, in managing the Fund's portfolio,
the Investment Adviser will not alter the composition of the Fund's portfolio
if, in the reasonable belief of the Investment Adviser, the effect of any such
alteration would be to cause the Fund to have Moody's Eligible Assets with an
aggregate Discounted Value, as of the immediately preceding Valuation Date, less
than the AMPS Basic Maintenance Amount as of such Valuation Date; provided,
however, that in the event that, as of the immediately preceding Valuation Date,
the aggregate Discounted Value of Moody's Eligible Assets exceeded the AMPS
Basic Maintenance Amount by five percent or less, the Investment Adviser will
not alter the composition of the Fund's portfolio in a manner reasonably
expected to reduce the aggregate Discounted Value of Moody's Eligible Assets
unless the Fund shall have confirmed that, after giving effect to such
alteration, the aggregate Discounted Value of Moody's Eligible Assets would
exceed the AMPS Basic Maintenance Amount.
For so long as any AMPS are rated by Moody's, the Fund will not buy or sell
financial futures contracts, write, purchase or sell call options on financial
futures contracts or purchase put options on financial futures contracts or
write call options (except covered call options) on portfolio securities unless
it receives written confirmation from Moody's that engaging in such transactions
would not impair the ratings then assigned to the AMPS by Moody's, except that
the Fund may purchase or sell exchange-traded financial futures contracts based
on the Municipal Index or Treasury Bonds, and purchase, write or sell
exchange-traded put options on such financial futures contracts, and purchase,
write or sell exchange-traded call options on such financial futures contracts
(collectively "Moody's Hedging Transactions"), subject to the following
limitations:
(i) the Fund will not engage in any Moody's Hedging Transaction based
on the Municipal Index (other than Closing Transactions) that would cause
the Fund at the time of such transaction to own or have sold (A)
outstanding financial futures contracts based on the Municipal Index
exceeding in number 10% of the average number of daily traded financial
futures contracts based on the Municipal Index in the 30 days preceding the
time of effecting such transaction as reported by The Wall Street Journal
or (B) outstanding financial futures contracts based on the Municipal Index
having a fair market value exceeding 50% of the fair market value of all
Municipal Bonds constituting Moody's Eligible Assets owned by the Fund
(other than Moody's Eligible Assets already subject to a Moody's Hedging
Transaction);
(ii) the Fund will not engage in any Moody's Hedging Transaction based
on Treasury Bonds (other than Closing Transactions) that would cause the
Fund at the time of such transaction to own or have sold (A) outstanding
financial futures contracts based on Treasury Bonds having an aggregate
Market Value exceeding 20% of the aggregate Market Value of Moody's
Eligible Assets owned by the Fund and rated Aa by Moody's (or, if not rated
by Moody's but rated by S&P, rated AAA by S&P) or (B) outstanding financial
futures contracts based on Treasury Bonds having an aggregate fair market
value exceeding 40% of the aggregate fair market value of all Municipal
Bonds constituting Moody's Eligible Assets owned by the Fund (other than
Moody's Eligible Assets already subject to a Moody's Hedging Transaction)
and rated Baa or A by Moody's (or, if not rated by Moody's but rated by
S&P, rated A or AA by S&P) (for purposes of the foregoing clauses (i) and
(ii), the Fund shall be deemed to own the number of financial futures
contracts that underlie any outstanding options written by the Fund);
(iii) the Fund will engage in Closing Transactions to close out any
outstanding financial futures contract based on the Municipal Index if the
amount of open interest in the Municipal Index as reported by The Wall
Street Journal is less than 5,000;
(iv) the Fund will engage in a Closing Transaction to close out any
outstanding financial futures contract by no later than the fifth Business
Day of the month in which such contract expires and will engage in a
Closing Transaction to close out any outstanding option on a financial
futures contract by no later than the first Business Day of the month in
which such option expires; (v) the Fund will engage in Moody's Hedging
Transactions only with respect to financial futures contracts or options
thereon having the next settlement date or the settlement date immediately
thereafter;
23
<PAGE> 76
(v) the Fund will not engage in options and futures transactions for
leveraging or speculative purposes and will not write any call options or
sell any financial futures contracts for the purpose of hedging the
anticipated purchase of an asset prior to completion of such purchase; and
(vi) the Fund will not enter into an option or futures transaction
unless, after giving effect thereto, the Fund would continue to have
Moody's Eligible Assets with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount.
For purposes of determining whether the Fund has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the Discounted Value of Moody's Eligible Assets that the
Fund is obligated to deliver or receive pursuant to an outstanding futures
contract or option shall be as follows: (i) assets subject to call options
written by the Fund that are either exchange-traded and "readily reversible" or
that expire within 49 days after the date as of which such valuation is made
shall be valued at the lesser of (A) Discounted Value and (B) the exercise price
of the call option written by the Fund; (ii) assets subject to call options
written by the Fund not meeting the requirements of clause (i) of this sentence
shall have no value; (iii) assets subject to put options written by the Fund
shall be valued at the lesser of (A) the exercise price and (B) the Discounted
Value of the subject security; (iv) futures contracts shall be valued at the
lesser of (A) settlement price and (B) the Discounted Value of the subject
security, provided that, if a contract matures within 49 days after the date as
of which such valuation is made, where the Fund is the seller the contract may
be valued at the settlement price and where the Fund is the buyer the contract
may be valued at the Discounted Value of the subject securities; and (v) where
delivery may be made to the Fund with any security of a class of securities, the
Fund shall assume that it will take delivery of the security with the lowest
Discounted Value.
For purposes of determining whether the Fund has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the following amounts shall be subtracted from the aggregate
Discounted Value of the Moody's Eligible Assets held by the Fund: 10% of the
exercise price of a written call option; (ii) the exercise price of any written
put option; (iii) where the Fund is the seller under a financial futures
contract, 10% of the settlement price of the financial futures contract; (iv)
where the Fund is the purchaser under a financial futures contract, the
settlement price of assets purchased under such financial futures contract; (v)
the settlement price of the underlying financial futures contract if the Fund
writes put options on a financial futures contract; and (vi) 105% of the fair
market value of the underlying financial futures contracts if the Fund writes
call options on a financial futures contract and does not own the underlying
contract.
For so long as any shares of AMPS are rated by Moody's, the Fund will not
enter into any contract to purchase securities for a fixed price at a future
date beyond customary settlement time (other than such contracts that constitute
Moody's Hedging Transactions), except that the Fund may enter into such
contracts to purchase newly-issued securities on the date such securities are
issued ("Forward Commitments"), subject to the following limitations:
(i) the Fund will maintain in a segregated account with its custodian
cash, cash equivalents or short term, fixed-income securities rated P-1,
MIG-1 or VMIG-1 by Moody's and maturing prior to the date of the Forward
Commitment with a fair market value that equals or exceeds the amount of
the Fund's obligations under any Forward Commitments to which it is from
time to time a party or long-term, fixed income securities with a
Discounted Value that equals or exceeds the amount of the Fund's
obligations under any Forward Commitment to which it is from time to time a
party, and
(ii) the Fund will not enter into a Forward Commitment unless, after
giving effect thereto, the Fund would continue to have Moody's Eligible
Assets with an aggregate Discounted Value equal to or greater than the AMPS
Basic Maintenance Amount.
For purposes of determining whether the Fund has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the Discounted Value of all Forward Commitments to which the
Fund is a party and of all securities deliverable to the Fund pursuant to such
Forward Commitments shall be zero.
24
<PAGE> 77
For so long as AMPS are rated by S&P or Moody's, the Fund, unless it has
received written confirmation from S&P and/or Moody's, as the case may be, that
such action would not impair the ratings then assigned to the AMPS by S&P and/or
Moody's, as the case may be, will not (i) borrow money except for the purpose of
clearing transactions in portfolio securities (which borrowings under any
circumstances shall be limited to the lesser of $10 million and an amount equal
to 5% of the fair market value of the Fund's assets at the time of such
borrowings and which borrowings shall be repaid within 60 days and not be
extended or renewed and shall not cause the aggregate Discounted Value of
Moody's Eligible Assets and S&P Eligible Assets to be less than the AMPS Basic
Maintenance Amount), (ii) engage in short sales of securities, (iii) lend any
securities, (iv) issue any class or series of shares ranking prior to or on a
parity with the AMPS with respect to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up of the Fund,
(v) reissue any AMPS previously purchased or redeemed by the Fund, (vi) merge or
consolidate into or with any other corporation or entity, (vii) change the
Fund's pricing service or (viii) engage in reverse repurchase agreements.
TRUSTEES AND OFFICERS
Information about the Trustees, executive officers and the portfolio
managers of the Fund, including their ages and their principal occupations
during the last five years is set forth below. Unless otherwise noted, the
address of each Trustee, executive officer and the portfolio manager is 800
Scudders Mill Road, Plainsboro, New Jersey 08536.
TERRY K. GLENN (58) -- President and Trustee(1)(2) -- Executive Vice
President of the Investment Adviser and Merrill Lynch Asset Management, L.P.
("MLAM") (which terms as used herein include their predecessors) since 1983;
Executive Vice President and Director of Princeton Services, Inc. ("Princeton
Services") since 1993; President of Princeton Funds Distributor, Inc. ("PFD")
since 1986 and Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.
RONALD W. FORBES (58) -- Trustee(2) -- 1400 Washington Avenue, Albany, New
York 12222. Professor of Finance, School of Business, State University of New
York at Albany since 1989; Consultant, Urban Institute, Washington, D.C. since
1995.
CYNTHIA A. MONTGOMERY (46) -- Trustee(2) -- Harvard Business School,
Soldiers Field Road, Boston, Massachusetts 02163. Professor, Harvard Business
School since 1989; Associate Professor, J.L. Kellogg Graduate School of
Management, Northwestern University from 1985 to 1989; Assistant Professor,
Graduate School of Business Administration, The University of Michigan from 1979
to 1985; Director, UNUM Corporation since 1990 and Director of Newell Co. since
1995.
CHARLES C. REILLY (67) -- Trustee(2) -- 9 Hampton Harbor Road, Hampton
Bays, New York 11946. Self-employed financial consultant since 1990; President
and Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior
Vice President of Arnold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, The University of Pennsylvania from 1989 to
1990.
KEVIN A. RYAN (66) -- Trustee(2) -- 127 Commonwealth Avenue, Chestnut Hill,
Massachusetts 02167. Founder and current Director of The Boston University
Center for the Advancement of Ethics and Character; Professor of Education at
Boston University since 1982; Formerly taught on the faculties of The University
of Chicago, Stanford University and Ohio State University.
RICHARD R. WEST (61) -- Trustee(2) -- Box 604, Genoa, Nevada 89411,
Professor of Finance since 1984, and Dean from 1984 to 1993, and currently Dean
Emeritus of New York University, Leonard N. Stern School of Business
Administration; Director of Bowne & Co., Inc., Vornado Realty Trust, Inc.,
Vornado Operating Company and Alexander's Inc.
ARTHUR ZEIKEL (66) -- Trustee(1)(2) -- Chairman of the Investment Adviser
and MLAM from 1997 to 1999; President of the Investment Adviser and MLAM from
1977 to 1997; Chairman of Princeton Services
25
<PAGE> 78
from 1997 to 1999, Director thereof from 1993 to 1999, and President thereof
from 1993 to 1997; Executive Vice President of Merrill Lynch & Co., Inc. from
1990 to 1999.
VINCENT R. GIORDANO (54) -- Senior Vice President(1)(2) -- Senior Vice
President of the Investment Adviser and MLAM since 1984; Senior Vice President
of Princeton Services since 1993.
KENNETH A. JACOB (48) -- Vice President(1)(2) -- First Vice President of
MLAM since 1997; Vice President of MLAM from 1984 to 1997; Vice President of the
Investment Adviser since 1984.
ROBERT A. DIMELLA, CFA (32) -- Vice President and Portfolio
Manager(1)(2) -- Vice President of MLAM since 1997; Assistant Vice President of
MLAM from 1995 to 1997; Assistant Portfolio Manager of MLAM from 1993 to 1995.
ROBERT D. SNEEDEN, JR. (46) -- Vice President and Portfolio
Manager(1)(2) -- Assistant Vice President and Portfolio Manager of MLAM since
1994.
DONALD C. BURKE (38) -- Vice President and Treasurer(1)(2) -- Senior Vice
President and Treasurer of the Investment Adviser and MLAM since 1999; Senior
Vice President and Treasurer of Princeton Services since 1999; Vice President of
PFD since 1999; First Vice President of MLAM from 1997 to 1999; Vice President
of MLAM from 1990 to 1997; Director of Taxation of MLAM since 1990.
WILLIAM E. ZITELLI, JR.(30) -- Secretary(1)(2) -- Attorney associated with
the Investment Adviser since 1998; Attorney associated with Pepper Hamilton LLP
from 1997 to 1998; Attorney associated with Reboul, MacMurray, Hewitt, Maynard
and Kristal from 1994 to 1997.
- ---------------
(1) Interested person, as defined in the 1940 Act, of the Fund.
(2) Such Trustee or officer is a director, trustee, officer of one or more
additional investment companies for which the Investment Adviser or its
affiliate, MLAM, acts as investment adviser or manager.
In connection with the election of the Fund's Trustees, holders of AMPS and
other preferred shares, voting as a separate class, are entitled to elect two of
the Fund's Trustees, and the remaining Trustees will be elected by holders of
common shares and preferred shares voting together as a single class. Messrs.
Reilly and West have been designated as the Trustees to be elected by holders of
the preferred shares. See "Description of Capital Shares" in the prospectus.
COMPENSATION OF TRUSTEES
Pursuant to an Investment Advisory Agreement with the Fund, the Investment
Adviser pays all compensation of officers and employees of the Fund as well as
the fees of all Trustees who are affiliated persons of ML&Co. or its
subsidiaries.
The Fund pays each Trustee not affiliated with the Investment Adviser (each
a "non-affiliated Trustee") a fee of $2,000 per year plus $200 per meeting
attended, and pays all Trustees' out-of-pocket expenses relating to attendance
at meetings. The Fund also pays members of the Board's audit and nominating
committee (the "Committee"), which consists of all the non-affiliated Trustees,
an annual fee of $800. The Chairman of the Committee receives an additional
annual fee of $1,000.
The following table sets forth compensation to be paid by the Fund to the
non-affiliated Trustees projected through the end of the Fund's first full
fiscal year and for the calendar year ended December 31,
26
<PAGE> 79
1998 the aggregate compensation paid by all investment companies advised by the
Investment Adviser and its affiliate, MLAM ("FAM/MLAM Advised Funds"), to the
non-affiliated Trustees.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PENSION OR FROM FUND AND
RETIREMENT FAM/MLAM
AGGREGATE BENEFITS ADVISED FUNDS
COMPENSATION ACCRUED AS PART OF PAID
NAME OF TRUSTEE FROM FUND FUND EXPENSE TO TRUSTEES
--------------- ------------ ------------------ ------------------
<S> <C> <C> <C>
Ronald W. Forbes(1)............................. $3,600 None $192,567
Cynthia A. Montgomery(1)........................ $3,600 None $192,567
Charles C. Reilly(1)............................ $4,600 None $362,858
Kevin A. Ryan(1)................................ $3,600 None $192,567
Richard R. West(1).............................. $3,600 None $334,125
</TABLE>
- ------------
(1) The Trustees serve on the boards of MLAM/FAM Advised Funds as follows: Mr.
Forbes (42 registered investment companies consisting of 55 portfolios); Ms.
Montgomery (42 registered investment companies consisting of 55 portfolios);
Mr. Reilly (61 registered investment companies consisting of 74 portfolios);
Mr. Ryan (42 registered investment companies consisting of 55 portfolios);
and Mr. West (63 registered investment companies consisting of 87
portfolios).
INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS
The Fund has entered into an Investment Advisory Agreement with the
Investment Adviser. The Fund pays the Investment Adviser a monthly fee at an
annual rate of 0.55 of 1% of the Fund's average weekly net assets (i.e., the
average weekly value of the total assets of the Fund, including proceeds from
the issuance of preferred shares, minus the sum of accrued liabilities of the
Fund and accumulated dividends on the preferred shares).
The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and furnish
office space for officers and employees of the Fund connected with investment
and economic research, trading and investment management of the Fund, as well as
the compensation of all Trustees of the Fund who are affiliated persons of the
Investment Adviser or any of its affiliates. The Fund pays all other expenses
incurred in the operation of the Fund, including, among other things, expenses
for legal and auditing services, taxes, costs of printing proxies, listing fees,
if any, share certificates and shareholder reports, charges of the custodian and
the transfer and dividend disbursing agent and registrar, fees and expenses with
respect to the issuance of preferred shares, Securities and Exchange Commission
fees, fees and expenses of non-interested Trustees, accounting and pricing
costs, insurance, interest, brokerage costs, litigation and other extraordinary
or non-recurring expenses, mailing and other expenses properly payable by the
Fund. Accounting services are provided to the Fund by the Investment Adviser,
and the Fund reimburses the Investment Adviser for its costs in connection with
such services.
Unless earlier terminated as described below, the Investment Advisory
Agreement will remain in effect for a period of two years from the date of
execution and will remain in effect from year to year thereafter if approved
annually (a) by the Board of Trustees of the Fund or by a majority of the
outstanding shares of the Fund and (b) by a majority of the Trustees who are not
parties to such contract or interested persons (as defined in the 1940 Act) of
any such party. Such contract is not assignable and may be terminated without
penalty on 60 days' written notice at the option of either party thereto or by
the vote of the shareholders of the Fund.
Securities held by the Fund may also be held by, or be appropriate
investments for, other funds or investment advisory clients for which the
Investment Adviser or its affiliates act as an adviser. Because of different
objectives or other factors, a particular security may be bought for an advisory
client when other clients are selling the same security. If purchases or sales
of securities by the Investment Adviser for the Fund or other funds for which it
acts as investment adviser or for other advisory clients arise for consideration
at or about the same time, transactions in such securities will be made, insofar
as feasible, for the respective funds and clients in a manner deemed equitable
to all. Transactions effected by the Investment Adviser (or its
27
<PAGE> 80
affiliates) on behalf of more than one of its clients during the same period may
increase the demand for securities being purchased or the supply of securities
being sold, causing an adverse effect on price.
CODE OF ETHICS
The Board of Trustees of the Fund has adopted a Code of Ethics pursuant to
Rule 17j-1 under the 1940 Act that incorporates the Code of Ethics of the
Investment Adviser (together, the "Codes"). The Codes significantly restrict the
personal investing activities of all employees of the Investment Adviser and, as
described below, impose additional, more onerous, restrictions on Fund
investment personnel.
The Codes require that all employees of the Investment Adviser preclear any
personal securities investment (with limited exceptions, such as U.S. Government
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of the
Investment Adviser include a ban on acquiring any securities in a "hot" initial
public offering and a prohibition from profiting on short-term trading
securities. In addition, no employee may purchase or sell any security that at
the time is being purchased or sold (as the case may be), or to the knowledge of
the employee is being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes provide for trading "blackout
periods" that prohibit trading by investment personnel of the Fund within
periods of trading by the Fund in the same (or equivalent) security (15 or 30
days depending upon the transaction).
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Trustees of the Fund, the
Investment Adviser is primarily responsible for the execution of the Fund's
portfolio transactions. In executing such transactions, the Investment Adviser
seeks to obtain the best results for the Fund, taking into account such factors
as price (including the applicable brokerage commission or dealer spread), size
of order, difficulty of execution and operational facilities of the firm
involved and the firm's risk in positioning a block of securities. While the
Investment Adviser generally seeks reasonably competitive commission rates, the
Fund does not necessarily pay the lowest commission or spread available.
The Fund has no obligation to deal with any broker or dealer in the
execution of transactions in portfolio securities. Subject to providing the best
price and execution, securities firms that provide investment research to the
Investment Adviser, including Merrill Lynch, may receive orders for transactions
by the Fund. Research information provided to the Investment Adviser by
securities firms is supplemental. It does not replace or reduce the level of
service performed by the Investment Adviser and the expenses of the Investment
Adviser will not necessarily be reduced because it receives supplemental
research information.
The Fund invests in securities traded in the over-the-counter markets, and
the Fund intends to deal directly with dealers who make markets in the
securities involved, except in those circumstances where better prices and
execution are available elsewhere. Under the 1940 Act, except as permitted by
exemptive order, persons affiliated with the Fund, including Merrill Lynch, are
prohibited from dealing with the Fund as principal in the purchase and sale of
securities. Since transactions in the over-the-counter market usually involve
transactions with dealers acting as principals for their own accounts, the Fund
does not deal with Merrill Lynch and its affiliates in connection with such
transactions except that, pursuant to exemptive orders obtained by the
Investment Adviser, the Fund may engage in principal transactions with the
Underwriter in high quality, short-term, tax-exempt securities. See "Investment
Restrictions." However, affiliated persons of the Fund, including Merrill Lynch,
may serve as its brokers in certain over-the-counter transactions conducted on
an agency basis.
The Fund also may purchase tax-exempt debt instruments in individually
negotiated transactions with the issuer. Because an active trading market may
not exist for such securities, the prices that the Fund may pay for these
securities or receive on their resale may be lower than that for similar
securities with a more liquid market.
28
<PAGE> 81
PORTFOLIO TURNOVER
The Fund may dispose of securities without regard to the time they have
been held when such action, for defensive or other reasons, appears advisable to
the Investment Adviser. While it is not possible to predict turnover rates with
any certainty, presently it is anticipated that the Fund's annual portfolio
turnover rate, under normal circumstances should be less than 100%. (The
portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of portfolio securities for the particular fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
particular fiscal year. For purposes of determining this rate, all securities
whose maturities at the time of acquisition are one year or less are excluded.)
A high portfolio turnover rate has certain tax consequences and results in
greater transaction costs, which are borne directly by the Fund.
TAXES
GENERAL
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). As long as it so qualifies, in any taxable
year in which it distributes at least 90% of its taxable net income and 90% of
its tax-exempt net income (see below), the Fund (but not its shareholders) will
not be subject to Federal income tax to the extent that it distributes its net
investment income and net realized capital gains. The Fund intends to distribute
substantially all of such income.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year-end, plus certain undistributed
amounts from previous years. The required distributions, however, are based only
on the taxable income of a RIC. The excise tax, therefore, generally will not
apply to the tax-exempt income of a RIC, such as the Fund, that pays
exempt-interest dividends.
The Internal Revenue Service (the "IRS"), in a revenue ruling, held that
certain auction rate preferred stock would be treated as stock for Federal
income tax purposes. The terms of the AMPS are substantially similar, but not
identical, to the auction rate preferred stock discussed in the revenue ruling,
and in the opinion of Brown & Wood LLP, counsel to the Fund, the AMPS will
constitute stock of the Fund and distributions with respect to AMPS (other than
distributions in redemption of AMPS subject to Section 302(b) of the Code) will
constitute dividends to the extent of the Fund's current and accumulated
earnings and profits as calculated for Federal income tax purposes.
Nevertheless, it is possible that the IRS might take a contrary position,
asserting, for example, that the AMPS constitute debt of the Fund. If this
position were upheld, the discussion of the treatment of distributions below
would not apply. Instead, distributions by the Fund to holders of AMPS would
constitute interest, whether or not they exceeded the earnings and profits of
the Fund, would be included in full in the income of the recipient and would be
taxed as ordinary income. Counsel believes that such a position, if asserted by
the IRS, would be unlikely to prevail.
The Fund intends to qualify to pay "exempt-interest dividends" as defined
in Section 852(b)(5) of the Code. Under such section if, at the close of each
quarter of its taxable year, at least 50% of the value of its total assets
consists of obligations exempt from Federal income tax ("tax-exempt
obligations") under Section 103(a) of the Code (relating generally to
obligations of a state or local governmental unit), the Fund shall be qualified
to pay exempt-interest dividends to its shareholders. Exempt-interest dividends
are dividends or any part thereof paid by the Fund which are attributable to
interest on tax-exempt obligations and designated by the Fund as exempt-interest
dividends in a written notice mailed to the Fund's shareholders within 60 days
after the close of its taxable year. To the extent that the dividends
distributed to the Fund's shareholders are derived from interest income exempt
from tax under Code Section 103(a) and are properly designated as
exempt-interest dividends, they will be excludable from a shareholder's gross
income for Federal tax purposes. Exempt-interest dividends are included,
however, in determining the portion, if any, of a person's social security and
railroad retirement benefits subject to Federal income taxes. Each shareholder
is advised to
29
<PAGE> 82
consult a tax adviser with respect to whether exempt-interest dividends retain
the exclusion under Code Section 103(a) if such shareholder would be treated as
a "substantial user" or "related person" under Code Section 147(a) with respect
to property financed with the proceeds of an issue of "industrial development
bonds" or "private activity bonds," if any, held by the Fund.
The Fund has applied for a ruling from the Florida Department of Revenue
that shares of the Fund will be exempt from Florida intangible personal property
tax in the following year, if, on the last business day of any calendar year, at
least 90% of the net asset value of the Fund's portfolio of assets is invested
in assets that are exempt from Florida intangible personal property tax ("asset
requirement"). Although there is no assurance that the Florida Department of
Revenue will issue a favorable ruling on this issue, the Florida Department of
Revenue has previously issued similar rulings. The Florida Department of Revenue
has the authority to revoke or modify a previously issued ruling; however, if a
ruling is revoked or modified, the revocation or modification is prospective
only. Prior to receipt of the ruling from the Florida Department of Revenue, the
Fund will rely on an opinion of Florida counsel for the Fund, Holland & Knight
LLP, stating that Fund shares will be exempt from Florida intangible personal
property tax if the asset requirement is met. This opinion is based on existing
Florida law and interpretive authority which could be changed at any time
retroactively. While the opinion represents the best judgment of Holland &
Knight LLP, the legal conclusions reached therein are not binding on the Florida
Department of Revenue, and there is no assurance that the legal conclusions will
not be challenged by the Department of Revenue or in judicial or administrative
proceedings. Thus, under Florida counsel's opinion or if a favorable ruling is
issued, and if the asset requirement is met, shares of the Fund owned by Florida
residents will be exempt from Florida intangible personal property tax. Assets
exempt from Florida intangible personal property tax include Florida Municipal
Bonds, obligations of the United States Government or its agencies, and cash.
The Fund may from time to time hold assets that are not exempt from Florida
intangible personal property tax. It is possible that the Fund may not be able
to fully dispose of a sufficient portion of its assets subject to Florida
intangible personal property tax by the last business day of the calendar year.
If, on such date the asset requirement is not met, the shares of the Fund would
be subject to Florida intangible personal property tax. If shares of the Fund
are subject to Florida intangible personal property tax because the asset
requirement is not met, only that portion of the value of Fund shares equal to
the portion of the net asset value of the Fund that is attributable to
obligations of the United States Government will be exempt from taxation. The
Fund will attempt to monitor its portfolio so that the asset requirement is met
on the last business day of each calendar year.
Dividends paid by the Fund to individuals who are Florida residents are not
subject to personal income taxation by Florida, because Florida does not impose
a personal income tax. Distributions of investment income and capital gains by
the Fund will be subject to Florida corporate income taxes, state taxes in
states other than Florida and local taxes in cities other than those in Florida.
Shareholders not subject to taxation by Florida do not benefit from the fact
that shares of the Fund will be exempt from the Florida intangible personal
property tax. Interest on indebtedness incurred or continued to purchase or
carry Fund shares is not deductible for Federal income tax purposes to the
extent attributable to exempt-interest dividends.
To the extent that the Fund's distributions are derived from interest on
its taxable investments or from an excess of net short-term capital gains over
net long-term capital losses ("ordinary income dividends"), such distributions
are considered ordinary income for Federal income tax purposes. Distributions,
if any, from an excess of net long-term capital gains over net short-term
capital losses derived from the sale of securities or from certain transactions
in futures or options ("capital gain dividends") are taxable as long-term
capital gains for Federal income tax purposes, regardless of the length of time
the shareholder has owned Fund shares. Certain categories of capital gains are
taxable at different rates. Generally not later than 60 days after the close of
its taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any exempt-interest dividends and capital gain
dividends, as well as any amount of capital gain dividends in the different
categories of capital gain referred to above. Distributions by the Fund, whether
from exempt-interest income, ordinary income or capital gains, are not eligible
for the dividends received deduction allowed to corporations under the Code.
30
<PAGE> 83
All or a portion of the Fund's gain from the sale or redemption of
tax-exempt obligations purchased at a market discount will be treated for
Federal income tax purposes as ordinary income rather than capital gain. This
rule may increase the amount of ordinary income dividends received by
shareholders. Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset). Any loss upon the sale
or exchange of Fund shares held for six months or less will be disallowed to the
extent of any exempt-interest dividends received by the shareholder. In
addition, any such loss that is not disallowed under the rule stated above will
be treated as long-term capital loss to the extent of any capital gain dividends
received by the shareholder. If the Fund pays a dividend in January which was
declared in the previous October, November or December to shareholders of record
on a specified date in one of such months, then such dividend will be treated
for tax purposes as being paid by the Fund and received by its shareholders on
December 31 of the year in which such dividend was declared.
The IRS has taken the position in a revenue ruling that if a RIC has two or
more classes of shares, it may designate distributions made to each class in any
year as consisting of no more than such class's proportionate share of
particular types of income, including exempt interest and net long-term capital
gains. A class's proportionate share of a particular type of income is
determined according to the percentage of total dividends paid by the RIC during
such year that was paid to such class. Thus, the Fund is required to allocate a
portion of its net capital gains and other taxable income to the AMPS. The Fund
generally will notify the Auction Agent of the amount of any net capital gains
and other taxable income to be included in any dividend on AMPS prior to the
Auction establishing the Applicable Rate for such dividend. Except for the
portion of any dividend that it informs the Auction Agent will be treated as
capital gains or other taxable income, the Fund anticipates that the dividends
paid on the AMPS will constitute exempt-interest dividends. The amount of net
capital gains and ordinary income allocable to AMPS (the "taxable distribution")
will depend upon the amount of such gains and income realized by the Fund and
the total dividends paid by the Fund on common shares and shares of the two
series of AMPS during a taxable year, but the taxable distribution generally is
not expected to be significant.
In the opinion of Brown & Wood LLP, counsel to the Fund, under current law
the manner in which the Fund intends to allocate items of tax-exempt income, net
capital gains and other taxable income, if any, among common shares and the AMPS
will be respected for Federal income tax purposes. However, the tax treatment of
Additional Dividends may affect the Fund's calculation of each class' allocable
share of capital gains and other taxable income. See "Tax Treatment of
Additional Dividends." In addition, there is currently no direct guidance from
the IRS or other sources specifically addressing whether the Fund's method for
allocating tax-exempt income, net capital gains and other taxable income among
common shares and the AMPS will be respected for Federal income tax purposes,
and it is possible that the IRS could disagree with counsel's opinion and
attempt to reallocate the Fund's net capital gains or other taxable income. In
the event of a reallocation, some of the dividends identified by the Fund as
exempt-interest dividends to holders of AMPS may be recharacterized as
additional capital gains or other taxable income. In the event of such
recharacterization, the Fund would not be required to make payments to such
shareholders to offset the tax effect of such reallocation. In addition, a
reallocation may cause the Fund to be liable for income tax and excise tax on
any reallocated taxable income. Brown & Wood LLP has advised the Fund that, in
its opinion, if the IRS were to challenge in court the Fund's allocations of
income and gain, the IRS would be unlikely to prevail. A holder should be aware,
however, that the opinion of Brown & Wood LLP represents only its best legal
judgment and is not binding on the IRS or the courts.
The Code subjects interest received on certain otherwise tax-exempt
securities to a Federal alternative minimum tax. The Federal alternative minimum
tax will apply to interest received on "private activity bonds" issued after
August 7, 1986. Private activity bonds are bonds which, although tax-exempt, are
used for purposes other than those generally performed by governmental units and
which benefit non-governmental entities (e.g., bonds used for industrial
development or housing purposes). Income received on such bonds is classified as
an item of "tax preference" which could subject certain investors in such bonds,
including shareholders of the Fund, to an increased Federal alternative minimum
tax. The Fund intends to purchase such "private activity bonds" and will report
to shareholders within 60 days after calendar year-end the portion
31
<PAGE> 84
of its dividends declared during the year which constitutes an item of tax
preference for Federal alternative minimum tax purposes. The Code further
provides that corporations are subject to a Federal alternative minimum tax
based, in part, on certain differences between taxable income as adjusted for
other tax preferences and the corporation's "adjusted current earnings", which
more closely reflect a corporation's economic income. Because an exempt-interest
dividend paid by the Fund will be included in adjusted current earnings, a
corporate shareholder may be required to pay a Federal alternative minimum tax
on exempt-interest dividends paid by the Fund.
The Fund may invest in instruments the return on which includes
nontraditional features such as indexed principal or interest payments
("nontraditional instruments"). These instruments may be subject to special tax
rules under which the Fund may be required to accrue and distribute income
before amounts due under the obligations are paid. In addition, it is possible
that all or a portion of the interest payments on such nontraditional
instruments could be recharacterized as taxable ordinary income.
If at any time when AMPS are outstanding the Fund does not meet the asset
coverage requirements of the 1940 Act, the Fund will be required to suspend
distributions to holders of common shares until the asset coverage is restored.
See "Description of AMPS -- Dividends -- Restrictions on Dividends and Other
Payments." This may prevent the Fund from distributing at least 90% of its net
income, and may, therefore, jeopardize the Fund's qualification for taxation as
a RIC. If the Fund were to fail to qualify as a RIC, some or all of the
distribution paid by the Fund would be fully taxable by Federal income tax
purposes. Upon any failure to meet the asset coverage requirements of the 1940
Act, the Fund, in its sole discretion, may, and under certain circumstances will
be required to, redeem shares of AMPS in order to maintain or restore the
requisite asset coverage and avoid the adverse consequences to the Fund and its
shareholders of failing to qualify as a RIC. See "Description of
AMPS -- Redemption." There can be no assurance, however, that any such action
would achieve such objectives.
As noted above, the Fund must distribute annually at least 90% of its net
taxable and tax-exempt interest income. A distribution will only be counted for
this purpose if it qualifies for the dividends paid deduction under the Code.
Some types of preferred shares that the Fund currently contemplates issuing may
raise an issue as to whether distributions on such preferred shares are
"preferential" under the Code and therefore not eligible for the dividends paid
deduction. The Fund intends to issue preferred shares that counsel advises will
not result in the payment of a preferential dividend and may seek a private
letter ruling from the IRS to that effect. If the Fund ultimately relies solely
on a legal opinion when it issues such preferred shares, there is no assurance
that the IRS would agree that dividends on the preferred shares are not
preferential. If the IRS successfully disallowed the dividends paid deduction
for dividends on the preferred shares, the Fund could lose the benefit of the
special treatment afforded RICs under the Code. In this case, dividends paid by
the Fund would not be exempt from Federal income taxes. Additionally, the Fund
would be subject to the Federal alternative minimum tax.
Under certain Code provisions, some taxpayers may be subject to a 31%
withholding tax on certain ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Fund or who, to the Fund's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup withholding.
Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and entities
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Nonresident shareholders are urged to consult their
own tax advisers concerning the applicability of the United States withholding
tax.
The Code provides that every shareholder required to file a tax return must
include for information purposes on such return the amount of exempt-interest
dividends received from all sources (including the Fund) during the taxable
year.
32
<PAGE> 85
TAX TREATMENT OF ADDITIONAL DIVIDENDS
If the Fund makes a Retroactive Taxable Allocation, it will pay Additional
Dividends to holders of AMPS who are subject to the Retroactive Taxable
Allocation. See "Description of AMPS -- Dividends -- Additional Dividends" in
the prospectus. The Federal income tax consequences of Additional Dividends
under existing law are uncertain. The Fund intends to treat a holder as
receiving a dividend distribution in the amount of any Additional Dividend only
as and when such Additional Dividend is paid. An Additional Dividend generally
will be designated by the Fund as an exempt-interest divided except as otherwise
required by applicable law. However, the IRS may assert that all or part of an
Additional Dividend is a taxable dividend either in the taxable year for which
the Retroactive Taxable Allocation is made or in the taxable year in which the
Additional Dividend is paid.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase or sell municipal bond index financial futures
contracts and interest rate financial futures contracts on U.S. Government
securities. The Fund may also purchase and write call and put options on such
financial futures contracts. In general, unless an election is available to the
Fund or an exception applies, such options and financial futures contracts that
are "Section 1256 contracts" will be "marked to market" for Federal income tax
purposes at the end of each taxable year, i.e., each such option or financial
futures contract will be treated as sold for its fair market value on the last
day of the taxable year, and any gain or loss attributable to Section 1256
contracts will be 60% long-term and 40% short-term capital gain or loss.
Application of these rules to Section 1256 contracts held by the Fund may alter
the timing and character of distributions to shareholders. The mark-to-market
rules outlined above, however, will not apply to certain transactions entered
into by the Fund solely to reduce the risk of changes in price or interest rates
with respect to its investments.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's sales of securities and transactions in financial futures
contracts and related options. Under Section 1092, the Fund may be required to
postpone recognition for tax purposes of losses incurred in certain sales of
securities and certain closing transactions in financial futures contracts or
the related options.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations and Florida tax laws presently
in effect. For the complete provisions, reference should be made to the
pertinent Code sections, the Treasury Regulations promulgated thereunder and
Florida tax laws. The Code and the Treasury Regulations, as well as the Florida
tax laws, are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes.
NET ASSET VALUE
Net asset value per common share is determined as of 15 minutes after the
close of business on the New York Stock Exchange (the "NYSE") (generally, the
NYSE closes at 4:00 p.m. Eastern time) on the last Business Day of each week.
For purposes of determining the net asset value of a common share, the value of
the securities held by the Fund plus any cash or other assets (including
interest accrued but not yet received) minus all liabilities (including accrued
expenses) and the aggregate liquidation value of the outstanding AMPS is divided
by the total number of common shares outstanding at such time. Expenses,
including the fees payable to the Investment Adviser, are accrued daily.
The Florida Municipal Bonds and Municipal Bonds in which the Fund invests
are traded primarily in the over-the-counter markets. In determining net asset
value, the Fund utilizes the valuations of portfolio securities furnished by a
pricing service approved by the Board of Trustees. The pricing service typically
values portfolio securities at the bid price or the yield equivalent when
quotations are readily available. Florida Municipal Bonds and Municipal Bonds
for which quotations are not readily available are valued at fair market value
on a consistent basis as determined by the pricing service using a matrix system
to determine valuations.
33
<PAGE> 86
The procedures of the pricing service and its valuations are reviewed by the
officers of the Fund under the general supervision of the Board of Trustees. The
Board of Trustees has determined in good faith that the use of a pricing service
is a fair method of determining the valuation of portfolio securities. Positions
in futures contracts are valued at closing prices for such contracts established
by the exchange on which they are traded, or if market quotations are not
readily available, are valued at fair value on a consistent basis using methods
determined in good faith by the Board of Trustees.
The Fund determines and makes available for publication the net asset value
of its common shares weekly. Currently, the net asset values of shares of
publicly traded closed-end investment companies investing in debt securities are
published in Barron's, the Monday edition of The Wall Street Journal, and the
Monday and Saturday editions of The New York Times.
ADDITIONAL INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith is required to
file reports, proxy statements and other information with the Commission. Any
such reports, proxy statements and other information can be inspected and copied
at the public reference facilities of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the Commission: Regional Office, at Seven World Trade
Center, Suite 1300, New York, New York 10048; Pacific Regional Office, at 5670
Wilshire Boulevard, 11th Floor, Los Angeles, California 90036; and Midwest
Regional Office, at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such materials can be obtained
from the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
at http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Fund, that file
electronically with the Commission. Reports, proxy statements and other
information concerning the Fund can also be inspected at the offices of the
American Stock Exchange, 9801 Washingtonian Boulevard, Gaithersburg, Maryland
20878.
Additional information regarding the Fund and the AMPS is contained in the
Registration Statement on Form N-2, including amendments, exhibits and schedules
thereto, relating to such shares filed by the Fund with the Commission in
Washington, D.C. This statement of additional information and the prospectus do
not contain all of the information set forth in the Registration Statement,
including any amendments, exhibits and schedules thereto. For further
information with respect to the Fund and the shares offered hereby, reference is
made to the Registration Statement. Statements contained in this statement of
additional information and the prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained from the Commission
upon the payment of certain fees prescribed by the Commission.
34
<PAGE> 87
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholder
MuniHoldings Florida Insured Fund V:
We have audited the accompanying statement of assets, liabilities and capital of
MuniHoldings Florida Insured Fund V as of July 15, 1999. This financial
statement is the responsibility of the Fund's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such statement of assets, liabilities and capital presents
fairly in all material respects, the financial position of MuniHoldings Florida
Insured Fund V as of June 15, 1999 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
July 19, 1999
35
<PAGE> 88
MUNIHOLDINGS FLORIDA INSURED FUND V
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
JUNE 15, 1999
<TABLE>
<S> <C>
ASSETS
Cash................................................... $100,005
Offering costs (Note 1)................................ 115,000
--------
Total assets...................................... 215,005
--------
LIABILITIES
Liabilities and accrued expenses (Note 1).............. 115,000
--------
NET ASSETS.................................................. $100,005
========
CAPITAL
Common Shares, par value $.10 per share; unlimited
shares authorized; 6,667 shares issued and outstanding
(Note 1).............................................. $ 667
Paid-in Capital in excess of par....................... 99,338
--------
Total Capital-Equivalent to $15.00 net asset value per
common share (Note 1)................................. $100,005
========
</TABLE>
NOTES TO STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
NOTE 1. ORGANIZATION
The Fund was organized under the laws of the Commonwealth of Massachusetts
on May 10, 1999 as a closed-end, non-diversified management investment company
and has had no operations other than the sale to Fund Asset Management, L.P.
(the "Investment Adviser") of an aggregate of 6,667 Common Shares for $100,005
on June 15, 1999. The General Partner of the Investment Adviser is an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc.
The Investment Adviser, on behalf of the Fund, will incur organizational
costs estimated at $26,250. Direct costs relating to the public offering of the
Fund's shares will be charged to capital at the time of issuance of shares.
NOTE 2. MANAGEMENT ARRANGEMENTS
The Fund has engaged the Investment Adviser to provide investment advisory
and management services to the Fund. The Investment Adviser will receive a
monthly fee for advisory services, at an annual rate equal to 0.55 of 1% of the
average weekly net assets of the Fund, including any proceeds from the issuance
of Preferred Shares. The Investment Adviser or an affiliate will pay Merrill
Lynch, Pierce, Fenner & Smith Incorporated a commission in the amount of 2.00%
of the price to the public per share in connection with the initial public
offering of the Fund's Common Shares.
NOTE 3. FEDERAL INCOME TAXES
The Fund intends to qualify as a "regulated investment company" and as such
(and by complying with the applicable provisions of the Internal Revenue Code of
1986, as amended) will not be subject to Federal income tax on taxable income
(including realized capital gains) that is distributed to shareholders.
36
<PAGE> 89
MUNIHOLDINGS FLORIDA INSURED FUND V
SCHEDULE OF INVESTMENTS (UNAUDITED)
JULY 23, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
S&P MOODY'S FACE VALUE
RATINGS RATINGS AMOUNT ISSUE (NOTE 1A)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALASKA -- 4.8%
A1+ VMIG1+ $2,500 Valdez, Alaska, Marine Terminal Revenue Refunding Bonds
(Exxon Pipeline Company Project), VRDN, Series A, 3.10%
due 12/01/2033(f)...................................... $ 2,500
- -----------------------------------------------------------------------------------------------------
ARIZONA -- 4.8%
A1+ VMIG1+ 2,500 Maricopa County, Arizona, IDA, Hospital Facility
Revenue Refunding Bonds (Samaritan Health Service
Hospital), VRDN, Series B2, 3.15% due
12/01/2008(e)(f)....................................... 2,500
- -----------------------------------------------------------------------------------------------------
FLORIDA -- 53.7%
NR* Baa1 3,000 Escambia County, Florida, PCR (Champion International
Corp. Project), AMT, 6.40% due 9/01/2030............... 3,144
- -----------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Florida State Board of Education, Capital Outlay Public
Education, GO, Series C, 5.60% due 6/01/2020(e)........ 1,014
- -----------------------------------------------------------------------------------------------------
NR* VMIG1+ 2,500 Hillsborough County, Florida, IDA, PCR (Tampa Electric
Company Project), VRDN, 3.10% due 9/01/2025(f)......... 2,500
- -----------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Lakeland, Florida, Electric and Water Revenue Refunding
Bonds, Series A, 5% due 10/01/2028(e).................. 2,350
- -----------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,100 Martin County, Florida, PCR, Refunding (Florida Power &
Light Co. Project), VRDN, 3.10% due 9/01/2024(f)....... 1,100
- -----------------------------------------------------------------------------------------------------
Miami-Dade County, Florida, HFA Revenue Refunding
Bonds, Home Ownership Mortgage, AMT, Series A-1(c)(d):
NR* Aaa 1,000 5.55% due 10/01/2019................................... 997
NR* Aaa 4,000 5.625% due 4/01/2032................................... 4,000
- -----------------------------------------------------------------------------------------------------
Pinellas County, Florida, HFA, S/F Mortgage Revenue
Bonds (Multi-County Program), AMT, Series C(c)(d):
NR* Aaa 1,735 5.70% due 9/01/2018.................................... 1,754
NR* Aaa 1,990 5.80% due 3/01/2029.................................... 2,022
- -----------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Pinellas County, Florida, Sewer Revenue Refunding
Bonds, 5% due 10/01/2024(b)............................ 1,890
- -----------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Sarasota County, Florida, Public Hospital Board,
Revenue Refunding Bonds (Sarasota Memorial Hospital),
Series B, 5.25% due 7/01/2024(e)....................... 2,955
- -----------------------------------------------------------------------------------------------------
A1+ VMIG1+ 2,500 St. Lucie County, Florida, PCR, Refunding (Florida
Power and Light Company Project), VRDN, 3.15% due
3/01/2027(f)........................................... 2,500
- -----------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 90
<TABLE>
<CAPTION>
S&P MOODY'S FACE VALUE
RATINGS RATINGS AMOUNT ISSUE (NOTE 1A)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR* Aaa $2,130 Village Center Community Development District, Florida,
Utility Revenue Refunding Bonds, Series A, 5% due
10/01/2023(e).......................................... $ 2,016
- -----------------------------------------------------------------------------------------------------
ILLINOIS -- 7.3%
AAA Aaa 4,000 Chicago, Illinois, Water Revenue Refunding Bonds, 5.25%
due 11/01/2027(b)...................................... 3,851
- -----------------------------------------------------------------------------------------------------
INDIANA -- 3.6%
AAA Aaa 2,000 Indiana Municipal Power Agency, Power Supply System
Revenue Refunding Bonds, Series A, 5.30%
due 1/01/2023(e)....................................... 1,920
- -----------------------------------------------------------------------------------------------------
MASSACHUSETTS -- 7.3%
AAA Aaa 4,000 Massachusetts State Turnpike Authority, Metropolitan
Highway System Revenue Refunding Bonds, Sub-Series B,
5.25% due 1/01/2029(e)................................. 3,838
- -----------------------------------------------------------------------------------------------------
MISSISSIPPI -- 4.8%
NR* P-1 2,500 Jackson County, Mississippi, PCR, Refunding (Chevron
U.S.A. Inc. Project), VRDN, 3.10% due 6/01/2023(f)..... 2,500
- -----------------------------------------------------------------------------------------------------
NEW MEXICO -- 4.0%
A1+ P-1 2,100 Farmington, New Mexico, PCR, Refunding (Arizona Public
Service Company), VRDN, Series A, 3.15%
due 5/01/2024(f)....................................... 2,100
- -----------------------------------------------------------------------------------------------------
NEW YORK -- 9.6%
A1+ VMIG1+ 2,500 Long Island Power Authority System, New York, Electric
System Revenue Bonds, VRDN, Sub-Series 5, 3.10% due
5/01/2033(f)........................................... 2,500
- -----------------------------------------------------------------------------------------------------
A1+ VMIG1+ 2,500 New York City, New York, City Municipal Water Finance
Authority, Water and Sewer System Revenue Refunding
Bonds, VRDN, Series G, 3.10% due 6/15/2024(b)(f)....... 2,500
- -----------------------------------------------------------------------------------------------------
PENNSYLVANIA -- 4.2%
A1+ NR* 2,200 Pennsylvania State Higher Educational Facilities
Authority Revenue Refunding Bonds (Carnegie Mellon
University), VRDN, Series A, 3.15% due 11/01/2025(f)... 2,200
- -----------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 91
<TABLE>
<CAPTION>
S&P MOODY'S FACE VALUE
RATINGS RATINGS AMOUNT ISSUE (NOTE 1A)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOUTH CAROLINA -- 1.9%
AAA NR* $1,000 Greenville County, South Carolina, University Center
Public Facilities Corporation Revenue Bonds, COP
(University Center Project), Series A, 5.25% due
4/01/2019(a)........................................... $ 981
- -----------------------------------------------------------------------------------------------------
TEXAS -- 4.8%
A1+ VMIG1+ 2,500 Lubbock, Texas, Health Facilities Development
Corporation Revenue Refunding Bonds (St. Joseph Health
System), VRDN, 3.15% due 7/01/2013(f).................. 2,500
- -----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST -- $58,137) -- 110.8%............................................. 58,132
LIABILITIES IN EXCESS OF OTHER ASSETS -- (10.8)%......................................... (5,661)
-------
NET ASSETS -- 100.0%...................................................................... $52,471
=======
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FNMA Collateralized.
(d) GNMA Collateralized.
(e) MBIA Insured.
(f) The interest rate is subject to change periodically based upon prevailing market rates. The
interest rate shown is the rate in effect at July 23, 1999.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
</TABLE>
39
<PAGE> 92
MUNIHOLDINGS FLORIDA INSURED FUND V
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
AS OF JULY 23, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (identified cost--$58,137,475) (Note
1a)....................................................... $58,131,985
Cash........................................................ 100,005
RECEIVABLES:
Capital shares sold.................................... $52,500,000
Securities sold........................................ 3,828,542
Interest............................................... 429,216
Investment adviser (Note 2)............................ 1,068 56,758,826
----------- -----------
Total assets................................................ 114,990,816
-----------
LIABILITIES:
Payable for securities purchased............................ 62,380,841
Accrued expenses and other liabilities...................... 139,391
-----------
Total liabilities........................................... 62,520,232
-----------
NET ASSETS:
Net assets.................................................. $52,470,584
===========
CAPITAL:
Capital Shares (unlimited number of shares of beneficial
interest authorized) (Note 4):
Common Shares, par value $.10 per share (3,506,667
shares issued and outstanding)........................ $ 350,667
Paid-in capital in excess of par............................ 52,111,015
Undistributed investment income--net........................ 18,392
Accumulated realized capital losses on investments--net..... (4,000)
Unrealized depreciation on investments--net................. (5,490)
-----------
Total capital--Equivalent to $14.96 net asset value per
Common Share.............................................. $52,470,584
===========
</TABLE>
See Notes to Financial Statements.
40
<PAGE> 93
MUNIHOLDINGS FLORIDA INSURED FUND V
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES:
MuniHoldings Florida Insured Fund V (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. Prior to commencement of operations on July 23, 1999 the
Fund had no operations other than those relating to organizational matters and
the sale of 6,667 shares of Common Shares on June 15, 1999, to Fund Asset
Management, L.P. ("FAM") for $100,005. The Fund's financial statements are
prepared in accordance with generally accepted accounting principles which may
require the use of management accruals and estimates. The Fund determines and
makes available for publication the net asset value of its Common Shares on a
weekly basis. The Fund's Common Shares are listed on the American Stock Exchange
under the symbol FDM. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments -- Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Fund, including valuations
furnished by a pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general supervision of the
Board of Trustees.
(b) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its portfolio
against adverse movements in the debt markets. Losses may arise due to changes
in the value of the contract or if the counterparty does not perform under the
contract.
- Financial futures contracts -- The Fund may purchase or sell financial
futures contracts and options on such futures contracts for the purpose
of hedging the market risk on existing securities or the intended
purchase of securities. Futures contracts are contracts for delayed
delivery of securities at a specific future date and at a specific price
or yield. Upon entering into a contract, the Fund deposits and maintains
as collateral such initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
- Options -- The Fund is authorized to write covered call options and
purchase call and put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently marked
to market to reflect the current market value of the option written. When
a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the
basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Fund enters
into a closing transaction), the Fund realizes a gain or loss on the
option to the extent of the premiums received or paid (or gain or loss to
the extent the cost of the closing transaction exceeds the premium paid
or received).
Written and purchased options are non-income producing investments.
41
<PAGE> 94
MUNIHOLDINGS FLORIDA INSURED FUND V
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(c) Income taxes -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income -- Security transactions
are recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Offering expenses -- Direct expenses relating to the public offering of
the Fund's Common Shares was charged to capital at the time of issuance of the
shares.
(f) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with FAM. The
general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. For such services, the Fund pays a
monthly fee at an annual rate of 0.55% of the Fund's average weekly net assets
including assets acquired through the issuance of preferred shares. For the
period ended July 23, 1999, FAM earned fees of $2,371, all of which was
voluntarily waived. FAM also reimbursed the Fund additional expenses of $1,068.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or directors
of FAM, PSI, and/or ML & Co.
3. INVESTMENTS:
Purchases of investments, excluding short-term securities, for the period
ended July 23, 1999 were $32,737,475, respectively. There were no long-term
sales.
Net realized losses for the period July 23, 1999 and net unrealized losses
as of July 23, 1999 were as follows:
<TABLE>
<CAPTION>
REALIZED UNREALIZED
LOSSES LOSSES
-------- ----------
<S> <C> <C>
Long-term investments....................................... -- $(5,490)
Short-term investments...................................... $(4,000) --
------- -------
Total....................................................... $(4,000) $(5,490)
======= =======
</TABLE>
As of July 23, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $5,490, of which $32,123 related to appreciated securities
and $37,613 related to depreciated securities. The aggregate cost of investments
at July 23, 1999 for Federal income tax purposes was $58,137,475.
4. BENEFICIAL INTEREST TRANSACTIONS:
The Fund is authorized to issue 200,000,000 shares of beneficial interest,
including Preferred Shares, par value $.10 per share, all of which were
initially classified as Common Shares. The Board of Trustees is authorized,
however, to reclassify any unissued shares of capital without approval of
holders of Common Shares.
42
<PAGE> 95
MUNIHOLDINGS FLORIDA INSURED FUND V
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONCLUDED)
Common Shares
Shares issued and outstanding 3,500,000 during the period ended July 23,
1999 increased by 3,500,000 as a result of the initial offering.
5. GENERAL:
As of July 23, 1999, the Fund had only one day of investment operations and
had not yet declared dividends (whereas it will ordinarily do so on a monthly
basis). As a result, the Fund believes that more extensive interim financial
statements would not be indicative of the Fund's current and ongoing operations.
The Fund believes that such financial statements may be misleading to potential
investors and, accordingly, believes that inclusion of such financial statements
would be inappropriate. For the period ended July 23, 1999, the Fund had net
investment income of $18,392. FAM voluntarily waived all expenses.
43
<PAGE> 96
APPENDIX A
ECONOMIC AND OTHER CONDITIONS IN FLORIDA
The following information is a brief summary of factors affecting the
economy of the State of Florida (the "State") and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based upon one or more publicly available offering statements
relating to debt offerings of the State, however, it has not been updated. The
Fund has not independently verified the information.
Throughout the 1980s, the State's unemployment rate has, generally, tracked
below that of the nation. In the nineties, the trend was reversed, until 1995
and 1996, when the State's unemployment rate again tracked below the national
average. The State's unemployment rate is projected to be 4.2% in 1999 and 4.4%
in 2000. The average rate of unemployment for the State was 4.3% while the
nation's was 4.5%. (The projections set forth in this Appendix were obtained
from a report, prepared by the Revenue and Economic Analysis Unit of the
Executive Office of the Governor for the State of Florida, contained within a
recent official statement, dated June 7, 1999, for a State of Florida debt
offering ("State of Florida Report".)
Personal income in the State has grown at a strong pace and has generally
outperformed both the nation as a whole and the Southeast in particular. From
1992 through 1998, the State's per capita income expanded approximately 29.0%,
while the national per capita income increased by 30.3%. Real personal income in
Florida is estimated to increase 4.9% in 1998-99 and 3.5% in 1999-2000 while
real personal income per capita is projected to grow at 3.1% in 1998-99 and 1.8%
in 1999-2000.
The structure of Florida's income differs from that of the nation and the
Southeast. Because Florida has a proportionally greater retirement age
population, property income (dividends, interest, and rent) and transfer
payments (social security and pension benefits, among other sources of income)
are a relatively more important source of income. For example, Florida's
employment income in 1998 represented 62.0% of total personal income, while the
nation's share of total personal income in the form of wages and salaries and
other labor benefits was 72.2%. Florida's income is dependent upon transfer
payments controlled by the federal government.
The State's strong population growth is one fundamental reason why its
economy has typically performed better than the nation as a whole. In 1980, the
State was ranked seventh among the 50 states with a population of 9.7 million
people. The State has grown dramatically since then and as of April 1, 1998
ranked fourth with an estimated population of 15.0 million. Since 1990, the
State's average annual rate of population increase has been approximately 1.8%
as compared to an approximately 1.9% for the nation as a whole. While annual
growth in the State's population is expected to decline somewhat, it is still
expected to grow close to 257,000 new residents per year throughout the 1990s.
Tourism is one of the State's most important industries. 48.7 million
people visited the State in 1998, according to the Florida Department of
Commerce. Tourism arrivals are expected to increase by 2.0% in 1998-99 and 1.7%
the following year. By the end of 1998-99, 49.7 million domestic and
international tourists are expected to have visited the State. In 1999-2000,
tourist arrivals should reach 50.6 million. Florida tourism appears to be
recovering from the effects of negative publicity regarding crime against
tourists in the state. Factors such as "product maturity" of a Florida vacation
package, higher prices, and more aggressive marketing by competing vacation
destinations, could contribute to a tourism slowdown.
Florida's dependency on the highly cyclical construction and
construction-related manufacturing sectors has declined. For example, total
contract construction employment as a share of total non-farm employment was a
little over 5.3% in 1998. Florida, nevertheless, has had a dynamic construction
industry, with single and multi-family housing starts accounting for
approximately 9.2% of total U.S. housing starts, while the State's population
was 5.5% of the nation's population. Total housing starts were 97,600 in 1998. A
driving force behind Florida's construction industry is its rapid growth in
population. In Florida, single and multi-family housing starts in 1998-99 are
projected to reach a combined level of 144,000 and 143,000 next year. Multi-
family starts have been slow to recover, but are showing stronger growth now and
should maintain a level of
A-1
<PAGE> 97
nearly 46,500 in 1998-99 and 46,300 in 1999-2000. Total construction
expenditures are forecasted to increase 8.6% in this year and 2.5% next year.
Financial operations of the State covering all receipts and expenditures
are maintained through the use of four funds -- the General Revenue Fund, Trust
Funds, the Working Capital Fund, and beginning in fiscal year 1994-95, the
Budget Stabilization Fund. In fiscal year 1996-97, the State derived
approximately 67% of its total direct revenues to these funds from State taxes
and fees. Federal funds and other special revenues accounted for the remaining
revenues. Major sources of tax revenues to the General Revenue Fund are the
sales and use tax, corporate income tax, intangible personal property tax,
beverage tax, and estate tax which amounted to 68%, 8%, 4%, 3% and 3%,
respectively, of total General Revenue Funds available. State expenditures are
categorized for budget and appropriation purposes by type of fund and spending
unit, which are further subdivided by line item. In fiscal year 1996-97,
expenditures from the General Revenue Fund for education, health and welfare,
and public safety amounted to approximately 53%, 26% and 14%, respectively, of
total General Revenues.
The Sales and Use Tax is the greatest single source of tax receipts in the
State. For the State fiscal year ended June 30, 1997, receipts from this source
were $12,089 million, an increase of 5.5% from fiscal year 1995-96. The second
largest source of State tax receipts is the Motor Fuel Tax. The collections from
this source during the fiscal year ending June 30, 1997, were $2,012 million.
Alcoholic beverage tax revenues totalled $447.2 million for the State fiscal
year ending June 30, 1997, an increase of $5.7 million from the previous year.
The receipts of corporate income tax for the fiscal year ended June 30, 1997
were $1,362.3 million, an increase of 17.2% from fiscal year 1995-96. Gross
Receipt tax collections for fiscal year 1996-97 totalled $575.7 million, an
increase of 6.0% over the previous fiscal year. Documentary stamp tax
collections totalled $844.2 million during fiscal year 1996-97, posting an 8.9%
increase from the previous fiscal year. The intangible personal property tax is
a tax on stocks, bonds, notes, governmental leaseholds, certain limited
partnership interests, mortgages and other obligations secured by liens on
Florida realty, and other intangible personal property. Total collections from
intangible personal property taxes were $952.4 million during the fiscal year
ending June 30, 1997, a 6.3% increase from the previous fiscal year. Severance
taxes totalled $39.2 million during fiscal year 1995-96, up 26.1% from the
previous fiscal year. In November 1986, the voters of the State approved a
constitutional amendment to allow the State to operate a lottery. Fiscal year
1996-97 produced ticket sales of $2.09 billion of which education received
approximately $792.3 million. In addition to the foregoing information, the
State of Florida Report contains the following General Revenue information for
fiscal year 1997-1998 in tabular form.
STATE OF FLORIDA
TOTAL GENERAL REVENUES
FISCAL YEARS 1997-98
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
1997-98
---------
ACTUAL
---------
<S> <C>
General Revenue Fund:
Sales Tax-GR................................................ $11,828.7
Beverage Tax & Licenses..................................... 550.1
Corporate Income Tax........................................ 1,395.7
Documentary Stamp Tax....................................... 429.6
Cigarette Tax............................................... 142.1
Insurance Premium Tax....................................... 295.5
Pari-Mutuels Tax............................................ 25.6
Intangibles Tax............................................. 756.0
Estate Tax.................................................. 595.0
Interest Earnings........................................... 217.9
</TABLE>
A-2
<PAGE> 98
<TABLE>
<CAPTION>
1997-98
---------
ACTUAL
---------
<S> <C>
Public Safety Licenses...................................... 61.2
Medical & Hospital Fees..................................... 99.8
Motor Vehicle Charges....................................... 41.3
Auto Title & Lien Fees...................................... 24.0
Severance Taxes............................................. 35.4
Service Charges............................................. 383.8
Other Taxes, Licenses & Fees................................ 262.5
Less: Refunds............................................... (204.6)
---------
Net General Revenue: ....................................... $16,939.4
---------
</TABLE>
Executive Office of the Governor
Revenue and Economic Analysis
March 8, 1999
Those tables also disclose the State Fuel Tax Trust Fund Revenues for
fiscal year 1997-1998 were $1,175.7 million.
For fiscal year 1998-99 the estimated General Revenue plus Working Capital
and Budget Stabilization funds available total $19,481.8 million, a 5.2%
increase over 1997-98. The $17,779.5 million in estimated revenues represent a
5.0% increase over the analogous figure in 1997-1998. With combined General
Revenue, Working Capital Fund and Budget Stabilization Fund appropriations at
$18,222.0 million, unencumbered reserves at the end of 1998-99 are estimated at
$1,360.7 million.
The State Constitution does not permit a state or local personal income
tax. An amendment to the State Constitution by the electors of the State would
be required in order to impose a personal income tax in the State.
Property valuations for homestead property are subject to a growth cap.
Growth in the just (market) value of property qualifying for the homestead
exemption is limited to 3% or the change in the Consumer Price Index, whichever
is less. If the property changes ownership or homestead status, it is to be
re-valued at full just value on the next tax roll. Although the impact of the
growth cap cannot be determined, it may have the effect of causing local
government units in the State to rely more on non-ad valorem tax revenues to
meet operating expenses and other requirements normally funded with ad valorem
tax revenues.
An amendment to the State Constitution was approved by statewide ballot in
the November 8, 1994 general election which is commonly referred to as the
"Limitation on State Revenues Amendment." This amendment provides that State
revenues collected for any fiscal year shall be limited to State revenues
allowed under the amendment for the prior fiscal year plus an adjustment for
growth. Growth is defined as an amount equal to the average annual rate of
growth in State personal income over the most recent twenty quarters times the
State revenues allowed under the amendment for the prior fiscal year. State
revenues collected for any fiscal year in excess of this limitation are required
to be transferred to the Budget Stabilization Fund until the fund reaches the
maximum balance specified in Section 19(g) of Article III of the State
Constitution, and thereafter is required to be refunded to taxpayers as provided
by general law. The limitation on State revenues imposed by the amendment may be
increased by the Legislature, by a two-thirds vote of each house.
The term "State revenues," as used in the amendment, means taxes, fees,
licenses, and charges for services imposed by the Legislature on individuals,
businesses, or agencies outside State government. However, the term "State
revenues" does not include: (i) revenues that are necessary to meet the
requirements set forth in documents authorizing the issuance of Bonds by the
State; (ii) revenues that are used to provide matching funds for the federal
Medicaid program with the exception of the revenues used to support the Public
Medical Assistance Trust Fund or its successor program and with the exception of
State matching funds used to fund elective expansions made after July 1, 1994;
(iii) proceeds from the State lottery
A-3
<PAGE> 99
returned as prizes; (iv) receipts of the Florida Hurricane Catastrophe Fund; (v)
balances carried forward from prior fiscal years; (vi) taxes, licenses, fees and
charges for services imposed by local, regional, or school district governing
bodies; or (vii) revenue from taxes, licenses, fees and charges for services
required to be imposed by any amendment or revision to the State Constitution
after July 1, 1994. The amendment took effect on January 1, 1995 and is
applicable to State fiscal year 1995-96.
It should be noted that many of the provisions of the amendment are
ambiguous, and likely will not be clarified until State courts have ruled on
their meanings. Further, it is unclear how the Legislature will implement the
language of the amendment and whether such implementing legislation will itself
be the subject of court interpretation.
The Fund cannot predict the impact of the amendment on State finances. To
the extent local governments traditionally receive revenues from the State which
are subject to, and limited by, the amendment, the future distribution of such
State revenues may be adversely affected by the amendment.
Hurricanes continue to endanger the coastal and interior portions of
Florida. Substantial damage resulted from Hurricane Andrew in 1992. During the
1995 hurricane season, a record number of tropical storms and hurricanes also
caused substantial damages. The 1996 and 1997 hurricane seasons were uneventful
with considerably less damage than in 1992 and 1995. During the 1998 hurricane
season, which ended November 30, two hurricanes caused significant damage to
several coastal communities in Florida. The hurricane season runs from June 1
through November 30. Although no storms have been reported at this time, the
Fund cannot predict the economic impact, if any, of future hurricanes and
storms.
As of June 7, 1999, the State had a high bond rating from Moody's Investors
Service, Inc. (Aa2), Standard & Poor's (AA+) and Fitch IBCA, Inc. (AA) on all of
its general obligation bonds. Outstanding general obligation bonds at June 30,
1998 totalled almost $8.7 billion and were issued to finance capital outlay for
educational projects of both local school districts, community colleges and
state universities, environmental protection and highway construction. The State
has issued over $555 million of general obligation bonds since July 1, 1998.
Due to investments in certain derivatives, Escambia County, Florida in 1994
sustained notable losses which may in the future affect their operations. As
reported in the local press, several lawsuits have resulted regarding such
investments.
In late October, 1996, the Florida Auditor General notified the Governor's
office that seventeen municipalities or special districts are in a state of
financial emergency (including the Orlando-Orange County Expressway Authority
and the Pinellas Suncoast Transit Authority) and that another twenty-five
municipalities or special districts might be in a state of financial emergency
(including the City of Miami). For these purposes, a state of emergency is
considered two consecutive years of budget deficits. Municipalities or special
districts that may be in a state of financial emergency are those that the
Auditor General was unable to conclude had sufficient revenues to cover their
deficits. The operations of all these entities mentioned in the Auditor
General's communication may be adversely affected by their financial condition.
A-4
<PAGE> 100
APPENDIX B
RATINGS OF MUNICIPAL BONDS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") MUNICIPAL BOND
RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa
securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present, but certain protective elements may be lacking
or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterizes
bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of main tenance of other terms of the contract over
any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with
respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Note: These bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, Al, Baal, Bal and B1.
Short-term Notes: The three ratings of Moody's for short-term notes are
MIG 1/VMIG 1, MIG 2/VMIG 2, and MIG 3/VMIG 3; MIG 1/VMIG 1 denotes "best
quality, enjoying strong protection from established cash flows"; MIG 2/VMIG 2
denotes "high quality" with "ample margins of protection"; MIG 3/VMIG 3
instruments are of "favorable quality . . . but . . . lacking the undeniable
strength of the preceding grades."
B-1
<PAGE> 101
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of short-term promissory obligations. Prime-l repayment capacity
will often be evidenced by the following characteristics: leading market
positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and with established access to a
range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of short-term promissory obligations. The effects of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes to the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
DESCRIPTION OF STANDARD & POOR'S, A DIVISION OF THE MCGRAW-HILL COMPANIES, INC.
("STANDARD & POOR'S"), MUNICIPAL DEBT RATINGS
A Standard & Poor's municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations or a specific program. It takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation.
The debt rating is not a recommendation to purchase, sell or hold a
financial obligation, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources Standard & Poor's considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded to, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity of the obligor to meet its financial commitment
on the obligation is extremely strong.
AA Debt rated "AA" differs from the highest-rated issues only in
small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
B-2
<PAGE> 102
A Debt rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still
strong.
BBB Debt rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity of the obligor to
meet its financial commitment on the obligation.
BB
B
CCC
CC
C Debt rated "BB," "B," "CCC," "CC" and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least
degree of speculation and "C" the highest degree of speculation.
While such debt will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties
or major risk exposures to adverse conditions.
D Debt rated "D" is in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during
such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition or the taking of similar action
if payments on an obligation are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into several categories, ranging from "A-l" for the
highest quality obligations to "D" for the lowest. These categories are as
follows:
A-1 This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus
sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the
higher designations.
B Issues rated "B" are regarded as having only speculative capacity
for timely payment.
C This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired
unless Standard & Poor's believes that such payments will be made
during such grace period.
c The "c" subscript is used to provide additional information to
investors that the bank may terminate its obligation to purchase
tendered bonds if the long-term credit rating of the issuer is
below an investment-grade level and/or the issuer's bonds are
deemed taxable.
p The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the
project financed by the debt being rated and indicates that
payment of debt service requirements is largely or entirely
dependent upon the successful, timely completion of the project.
This rating, however, while addressing credit quality subsequent
to completion of the project, makes no comment on the likelihood
of or the
B-3
<PAGE> 103
risk of default upon failure of such completion. The investor
should exercise his own judgment with respect to such likelihood
and risk.
* Continuance of the ratings is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement of closing
documentation confirming investments and cash flows.
r The "r" highlights derivative, hybrid, and certain other
obligations that Standard & Poor's believes may experience high
volatility or high variability in expected returns as a result of
noncredit risks. Examples of such obligations are securities with
principal or interest return indexed to equities, commodities, or
currencies; certain swaps and options; and interest-only and
principal-only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.
A commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information.
A Standard & Poor's note rating reflects the liquidity factors and market
access risks unique to such notes. Notes due in three years or less will likely
receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment.
-- Amortization schedule -- the larger the final maturity relative to other
maturities, the more likely it will be treated as a note.
-- Source of payment -- the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note.
Note rating symbols are as follows:
SP-1 Strong capacity to pay principal and interest. An issue
determined to possess a very strong capacity to pay debt service
is given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the
term of the notes.
SP-3 Speculative capacity to pay principal and interest.
DESCRIPTION OF FITCH IBCA, INC.'S ("FITCH") INVESTMENT GRADE BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The rating
represents Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guarantees unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
B-4
<PAGE> 104
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated "AAA." Because bonds rated in the "AAA" and "AA" categories
are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated
"F-1+."
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
BBB Bonds considered to be investment grade and of
satisfactory-credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA" category.
NR Indicates that Fitch does not rate the specific issue.
Conditional A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
Suspended A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
Withdrawn A rating will be withdrawn when an issue matures or is called or
refinanced and, at Fitch's discretion, when an issuer fails to
furnish proper and timely information.
FitchAlert Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the
likely direction of such change. These are designated as
"Positive," indicating a potential upgrade, "Negative," for
potential downgrade, or "Evolving," where ratings may be raised
or lowered. FitchAlert is relatively short-term, and should be
resolved within three to 12 months.
Ratings Outlook: An outlook is used to describe the most likely direction
of any rating change over the intermediate term. It is described as "Positive"
or "Negative." The absence of a designation indicates a stable outlook.
DESCRIPTION OF FITCH'S SPECULATIVE GRADE BOND RATINGS
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or liquidation.
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<PAGE> 105
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.
Bonds that have the rating are of similar but not necessarily identical
credit quality since rating categories cannot fully reflect the differences in
degrees of credit risk.
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives
can be identified which could assist the obligor in satisfying
its debt service requirements.
B Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest
reflects the obligor's limited margin of safety and the need for
reasonable business and economic activity throughout the life of
the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or
principal.
DDD
DD
D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis
of their ultimate recovery value in liquidation or reorganization
of the obligor. "DDD" represents the highest potential for
recovery on these bonds, and "D" represents the lowest potential
for recovery.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "DDD," "DD," or "D" categories.
DESCRIPTION OF FITCH'S SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch short-term ratings are as follows:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for
timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than
issues rated "F-1+."
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned "F-1+"
and "F-1" ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
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<PAGE> 106
F-S Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
D Default. Issues assigned this rating are in actual or imminent
payment default.
LOC The symbol "LOC" indicates that the rating is based on a letter
of credit issued by a commercial bank.
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APPENDIX C
PORTFOLIO INSURANCE
Set forth below is further information with respect to the insurance
policies (the "Policies") that the Fund may obtain from several insurance
companies with respect to insured Florida Municipal Bonds and Municipal Bonds
held by the Fund. The Fund has no obligation to obtain any such Policies, and
the terms of any Policies actually obtained may vary significantly from the
terms discussed below.
In determining eligibility for insurance, insurance companies will apply
their own standards. These standards correspond generally to the standards such
companies normally use in establishing the insurability of new issues of Florida
Municipal Bonds and Municipal Bonds and are not necessarily the criteria that
would be used in regard to the purchase of such bonds by the Fund. The Policies
do not insure (i) municipal securities ineligible for insurance and (ii)
municipal securities no longer owned by the Fund.
The Policies do not guarantee the market value of the insured Florida
Municipal Bonds and Municipal Bonds or the value of the shares of the Fund. In
addition, if the provider of an original issuance insurance policy is unable to
meet its obligations under such policy or if the rating assigned to the
insurance claims-paying ability of any such insurer deteriorates, the insurance
company will not have any obligation to insure any issue held by the Fund that
is aversely affected by either of the above described events. In addition to the
payment of premium, the policies may require that the Fund notify the insurance
company as to all Florida Municipal Bonds and Municipal Bonds in the Fund's
portfolio and permit the insurance company to audit their records. The insurance
premiums will be payable monthly by the Fund in accordance with a premium
schedule to be furnished by the insurance company at the time the Policies are
issued. Premiums are based upon the amounts covered and the composition of the
portfolio.
The Fund will seek to utilize insurance companies that have insurance
claims-paying ability ratings of AAA from Standard & Poor's ("S&P") or Fitch
IBCA, Inc. ("Fitch") or Aaa from Moody's Investors Service ("Moody's"). There
can be no assurance however, that insurance from insurance carriers meeting
these criteria will be at all times available.
An S&P insurance claims-paying ability rating is an assessment of an
operating insurance company's financial capacity to meet obligations under an
insurance policy in accordance with the terms. An insurer with an insurance
claims-paying ability rating of AAA has the highest rating assigned by S&P.
Capacity to honor insurance contracts is considered by S&P to be extremely
strong and highly likely to remain so over a long period of time. A Fitch
insurance claims-paying ability rating provides an assessment of an insurance
company's financial strength and, therefore, its ability to pay policy and
contract claims under the terms indicated. An insurer with an insurance
claims-paying ability rating of AAA has the highest rating assigned by Fitch.
The ability to pay claims is adjudged by Fitch to be extremely strong for
insurance companies with this highest rating. In the opinion of Fitch,
foreseeable business and economic risk factors should not have any material
adverse impact on the ability of these insurers to pay claims. In Fitch's
opinion, profitability, overall balance sheet strength, capitalization and
liquidity are all at very secure levels and are unlikely to be affected by
potential adverse underwriting, investment or cyclical events. A Moody's
insurance claims-paying ability rating is an opinion of the ability of an
insurance company to repay punctually senior policyholder obligations and
claims. An insurer with an insurance claims-paying ability rating of Aaa is
considered by Moody's to be of the best quality. In the opinion of Moody's, the
policy obligations of an insurance company with an insurance claims-paying
ability rating of Aaa carry the smallest degree of credit risk and, while the
financial strength of these companies is likely to change, such changes as can
be visualized are most unlikely to impair the company's fundamentally strong
position.
An insurance claims-paying ability rating of S&P, Fitch or Moody's does not
constitute an opinion on any specific contract in that such an opinion can only
be rendered upon the review of the specific insurance contract. Furthermore, an
insurance claims-paying ability rating does not take into account deductibles,
surrender or cancellation penalties or the timeliness of payment; nor does it
address the ability of a company to meet nonpolicy obligations (i.e., debt
contracts).
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<PAGE> 108
The assignment of ratings by S&P, Fitch or Moody's to debt issues that are
fully or partially supported by insurance policies, contracts or guarantees is a
separate process from the determination of claims-paying ability ratings. The
likelihood of a timely flow of funds from the insurer to the trustee for the
bondholders is a key element in the rating determination for such debt issues.
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<PAGE> 109
APPENDIX D
SETTLEMENT PROCEDURES
The following summary of Settlement Procedures sets forth the procedures
expected to be followed in connection with the settlement of each Auction and
will be incorporated by reference in the Auction Agent Agreement and each
Broker-Dealer Agreement. Nothing contained in this Appendix D constitutes a
representation by the Fund that in each Auction each party referred to herein
actually will perform the procedures described herein to be performed by such
party. Capitalized terms used herein shall have the respective meanings
specified in the glossary of this Prospectus or Appendix E hereto, as the case
may be.
(a) On each Auction Date, the Auction Agent shall notify by telephone or
through the Auction Agent's Processing System the Broker-Dealers that
participated in the Auction held on such Auction Date and submitted an Order on
behalf of any Beneficial Owner or Potential Beneficial Owner of:
(i) the Applicable Rate fixed for the next succeeding Dividend Period;
(ii) whether Sufficient Clearing Bids existed for the determination of
the Applicable Rate;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer") submitted a
Bid or a Sell Order on behalf of a Beneficial Owner, the number, if any, of
AMPS to be sold by such Beneficial Owner;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted a Bid
on behalf of a Potential Beneficial Owner, the number, if any, of AMPS to
be purchased by such Potential Beneficial Owner;
(v) if the aggregate number of AMPS to be sold by all Beneficial
Owners on whose behalf such Broker-Dealer submitted a Bid or a Sell Order
exceeds the aggregate number of AMPS to be purchased by all Potential
Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid, the
name or names of one or more Buyer's Broker-Dealers (and the name of the
Agent Member, if any, of each such Buyer's Broker-Dealer) acting for one or
more purchasers of such excess number of AMPS and the number of such shares
to be purchased from one or more Beneficial Owners on whose behalf such
Broker-Dealer acted by one or more Potential Beneficial Owners on whose
behalf each of such Buyer's Broker-Dealers acted;
(vi) if the aggregate number of AMPS to be purchased by all Potential
Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid
exceeds the aggregate number of AMPS to be sold by all Beneficial Owners on
whose behalf such Broker-Dealer submitted a Bid or a Sell Order, the name
or names of one or more Seller's Broker-Dealers (and the name of the Agent
Member, if any, of each such Seller's Broker-Dealer) acting for one or more
sellers of such excess number of AMPS and the number of such shares to be
sold to one or more Potential Beneficial Owners on whose behalf such
Broker-Dealer acted by one or more Beneficial Owners on whose behalf each
of such Seller's Broker-Dealers acted; and
(vii) the Auction Date of the next succeeding Auction with respect to
the AMPS.
(b) On each Auction Date, each Broker-Dealer that submitted an Order on
behalf of any Beneficial Owner or Potential Beneficial Owner shall:
(i) in the case of a Broker-Dealer that is a Buyer's Broker-Dealer,
instruct each Potential Beneficial Owner on whose behalf such Broker-Dealer
submitted a Bid that was accepted, in whole or in part, to instruct such
Potential Beneficial Owner's Agent Member to pay to such Broker-Dealer (or
its Agent Member) through the Securities Depository the amount necessary to
purchase the number of AMPS to be purchased pursuant to such Bid against
receipt of such shares and advise such Potential Beneficial Owner of the
Applicable Rate for the next succeeding Dividend Period;
(ii) in the case of a Broker-Dealer that is a Seller's Broker-Dealer,
instruct each Beneficial Owner on whose behalf such Broker-Dealer submitted
a Sell Order that was accepted, in whole or in part, or a Bid that was
accepted, in whole or in part, to instruct such Beneficial Owner's Agent
Member to deliver to such Broker-Dealer (or its Agent Member) through the
Securities Depository the number of AMPS
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<PAGE> 110
to be sold pursuant to such Order against payment therefor and advise any
such Beneficial Owner that will continue to hold AMPS of the Applicable
Rate for the next succeeding Dividend Period;
(iii) advise each Beneficial Owner on whose behalf such Broker-Dealer
submitted a Hold Order of the Applicable Rate for the next succeeding
Dividend Period;
(iv) advise each Beneficial Owner on whose behalf such Broker-Dealer
submitted an Order of the Auction Date for the next succeeding Auction; and
(v) advise each Potential Beneficial Owner on whose behalf such
Broker-Dealer submitted a Bid that was accepted, in whole or in part, of
the Auction Date for the next succeeding Auction.
(c) On the basis of the information provided to it pursuant to (a) above,
each Broker-Dealer that submitted a Bid or a Sell Order on behalf of a Potential
Beneficial Owner or a Beneficial Owner shall, in such manner and at such time or
times as in its sole discretion it may determine, allocate any funds received by
it pursuant to (b)(i) above and any AMPS received by it pursuant to (b)(ii)
above among the Potential Beneficial Owners, if any, on whose behalf such
Broker-Dealer submitted Bids, the Beneficial Owners, if any, on whose behalf
such Broker-Dealer submitted Bids that were accepted or Sell Orders, and any
Broker-Dealer or Broker-Dealers identified to it by the Auction Agent pursuant
to (a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Beneficial Owner and Beneficial Owner shall
instruct its Agent Member as provided in (b)(i) or (ii) above, as the case
may be;
(ii) each Seller's Broker-Dealer which is not an Agent Member of the
Securities Depository shall instruct its Agent Member to (A) pay through
the Securities Depository to the Agent Member of the Beneficial Owner
delivering shares to such Broker-Dealer pursuant to (b)(ii) above the
amount necessary to purchase such shares against receipt of such shares,
and (B) deliver such shares through the Securities Depository to a Buyer's
Broker-Dealer (or its Agent Member) identified to such Seller's
Broker-Dealer pursuant to (a)(v) above against payment therefor; and
(iii) each Buyer's Broker-Dealer which is not an Agent Member of the
Securities Depository shall instruct its Agent Member to (A) pay through
the Securities Depository to a Seller's Broker-Dealer (or its Agent Member)
identified pursuant to (a)(vi) above the amount necessary to purchase the
shares to be purchased pursuant to (b)(i) above against receipt of such
shares, and (B) deliver such shares through the Securities Depository to
the Agent Member of the purchaser thereof against payment therefor.
(e) On the day after the Auction Date:
(i) each Bidder's Agent Member referred to in (d)(i) above shall
instruct the Securities Depository to execute the transactions described in
(b)(i) or (ii) above, and the Securities Depository shall execute such
transactions;
(ii) each Seller's Broker-Dealer or its Agent Member shall instruct
the Securities Depository to execute the transactions described in (d)(ii)
above, and the Securities Depository shall execute such transactions; and
(iii) each Buyer's Broker-Dealer or its Agent Member shall instruct
the Securities Depository to execute the transactions described in (d)(iii)
above, and the Securities Depository shall execute such transactions.
(f) If a Beneficial Owner selling AMPS in an Auction fails to deliver such
shares (by authorized book-entry), a Broker-Dealer may deliver to the Potential
Beneficial Owner on behalf of which it submitted a Bid that was accepted a
number of whole AMPS that is less than the number of shares that otherwise was
to be purchased by such Potential Beneficial Owner. In such event, the number of
AMPS to be so delivered shall be determined solely by such Broker-Dealer.
Delivery of such lesser number of shares shall constitute good delivery.
Notwithstanding the foregoing terms of this paragraph (f), any delivery or
non-delivery of shares
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<PAGE> 111
which shall represent any departure from the results of an Auction, as
determined by the Auction Agent, shall be of no effect unless and until the
Auction Agent shall have been notified of such delivery or non-delivery in
accordance with the provisions of the Auction Agent Agreement and the
Broker-Dealer Agreements.
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APPENDIX E
AUCTION PROCEDURES
The following procedures will be set forth in provisions of the Certificate
of Designation relating to the AMPS, and will be incorporated by reference in
the Auction Agent Agreement and each Broker-Dealer Agreement. The terms not
defined below are defined in the forepart of this Prospectus. Nothing contained
in this Appendix E constitutes a representation by the Fund that in each Auction
each party referred to herein actually will perform the procedures described
herein to be performed by such party.
PARAGRAPH 10(a) Certain Definitions.
As used in this Paragraph 10, the following terms shall have the following
meanings, unless the context otherwise requires:
(i) "AMPS" shall mean the shares of AMPS being auctioned pursuant to
this Paragraph 10.
(ii) "Auction Date" shall mean the first Business Day preceding the
first day of a Dividend Period.
(iii) "Available AMPS" shall have the meaning specified in Paragraph
10(d)(i) below.
(iv) "Bid" shall have the meaning specified in Paragraph 10(b)(i)
below.
(v) "Bidder" shall have the meaning specified in Paragraph 10(b)(i)
below.
(vi) "Hold Order" shall have the meaning specified in Paragraph
10(b)(i) below.
(vii) "Maximum Applicable Rate" for any Dividend Period will be the
Applicable Percentage of the Reference Rate. The Applicable Percentage will
be determined based on (i) the lower of the credit rating or ratings
assigned on such date to such shares by Moody's and S&P (or if Moody's or
S&P or both shall not make such rating available, the equivalent of either
or both of such ratings by a Substitute Rating Agency or two Substitute
Rating Agencies or, in the event that only one such rating shall be
available, such rating) and (ii) whether the Fund has provided modification
to the Auction Agent prior to the Auction establishing the Applicable Rate
for any dividend that net capital gains or other taxable income will be
included in such dividend on AMPS as follows:
<TABLE>
<CAPTION>
CREDIT RATING APPLICABLE APPLICABLE
- ---------------------------------------------------- PERCENTAGE OF PERCENTAGE OF
REFERENCE RATE -- ------------- -------------
REFERENCE RATE -- NO NOTIFICATION NOTIFICATION MOODY'S S&P
- --------------------------------- ----------------- ------------- -------------
<S> <C> <C> <C>
"aa3" or higher AA- or Higher 110% 150%
"a3" or "a1" A- to A+ 125% 160%
"baa3" to "baa1" BBB- to BBB+ 150% 250%
Below "baa3" Below BBB- 200% 275%
</TABLE>
The Fund shall take all reasonable action necessary to enable S&P
and Moody's to provide a rating for the AMPS. If either S&P or Moody's
shall not make such a rating available, or if neither S&P nor Moody's
shall make such a rating available, Merrill Lynch, Pierce, Fenner &
Smith Incorporated or its affiliates and successors, after consultation
with the Fund, shall select a nationally recognized statistical rating
organization or two nationally recognized statistical rating
organizations to act as a Substitute Rating Agency or Substitute Rating
Agencies, as the case may be.
(viii) "Order" shall have the meaning specified in Paragraph 10(b)(i)
below.
(ix) "Sell Order" shall have the meaning specified in Paragraph
10(b)(i) below.
(x) "Submission Deadline" shall mean 1:00 p.m., Eastern time, on any
Auction Date or such other time on any Auction Date as may be specified by
the Auction Agent from time to time as the time by which each Broker-Dealer
must submit to the Auction Agent in writing all Orders obtained by it for
the Auction to be conducted on such Auction Date.
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<PAGE> 113
(xi) "Submitted Bid" shall have the meaning specified in Paragraph
10(d)(i) below.
(xii) "Submitted Hold Order" shall have the meaning specified in
Paragraph 10(d)(i) below.
(xiii) "Submitted Order" shall have the meaning specified in Paragraph
10(d)(i) below.
(xiv) "Submitted Sell Order" shall have the meaning specified in
Paragraph 10(d)(i) below.
(xv) "Sufficient Clearing Bids" shall have the meaning specified in
Paragraph 10(d)(i) below.
(xvi) "Winning Bid Rate" shall have the meaning specified in Paragraph
10(d)(i) below.
PARAGRAPH 10(b) Orders by Beneficial Owners, Potential Beneficial Owners,
Existing Holders and Potential Holders.
(i) Unless otherwise permitted by the Fund, Beneficial Owners and Potential
Beneficial Owners may only participate in Auctions through their Broker-Dealers.
Broker-Dealers will submit the Orders of their respective customers who are
Beneficial Owners and Potential Beneficial Owners to the Auction Agent,
designating themselves as Existing Holders in respect of shares subject to
Orders submitted or deemed submitted to them by Beneficial Owners and as
Potential Holders in respect of shares subject to Orders submitted to them by
Potential Beneficial Owners. A Broker-Dealer may also hold AMPS in its own
account as a Beneficial Owner. A Broker-Dealer may thus submit Orders to the
Auction Agent as a Beneficial Owner or a Potential Beneficial Owner and
therefore participate in an Auction as an Existing Holder or Potential Holder on
behalf of both itself and its customers. On or prior to the Submission Deadline
on each Auction Date:
(A) each Beneficial Owner may submit to its Broker-Dealer information
as to:
(1) the number of outstanding AMPS, if any, held by such Beneficial
Owner which such Beneficial Owner desires to continue to hold without
regard to the Applicable Rate for the next succeeding Dividend Period;
(2) the number of outstanding AMPS, if any, held by such Beneficial
Owner which such Beneficial Owner desires to continue to hold, provided
that the Applicable Rate for the next succeeding Dividend Period shall
not be less than the rate per annum specified by such Beneficial Owner,
and/or
(3) the number of outstanding AMPS, if any, held by such Beneficial
Owner which such Beneficial Owner offers to sell without regard to the
Applicable Rate for the next succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Beneficial Owners
that shall be maintained in good faith for the purpose of conducting a
competitive Auction, shall contact Potential Beneficial Owners, including
Persons that are not Beneficial Owners, on such list to determine the
number of outstanding AMPS, if any, which each such Potential Beneficial
Owner offers to purchase, provided that the Applicable Rate for the next
succeeding Dividend Period shall not be less than the rate per annum
specified by such Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, of information
referred to in clause (A) or (B) of this Paragraph 10(b)(i) is hereinafter
referred to as an "Order" and each Beneficial Owner and each Potential
Beneficial Owner placing an Order, including a Broker-Dealer acting in such
capacity for its own account, is hereinafter referred to as a "Bidder"; an Order
containing the information referred to in clause (A)(1) of this Paragraph
10(b)(i) is hereinafter referred to as a "Hold Order"; an Order containing the
information referred to in clause (A)(2) or (B) of this Paragraph 10(b)(i) is
hereinafter referred to as a "Bid"; and an Order containing the information
referred to in clause (A)(3) of this Paragraph 10(b)(i) is hereinafter referred
to as a "Sell Order." Inasmuch as a Broker-Dealer participates in an Auction as
an Existing Holder or a Potential Holder only to represent the interests of a
Beneficial Owner or Potential Beneficial Owner, whether it be its customers or
itself, all
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<PAGE> 114
discussion herein relating to the consequences of an Auction for Existing
Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented.
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable offer
to sell:
(1) the number of outstanding AMPS specified in such Bid if the
Applicable Rate determined on such Auction Date shall be less than the
rate per annum specified in such Bid; or
(2) such number or a lesser number of outstanding AMPS to be
determined as set forth in Paragraph 10(e)(i)(D) if the Applicable Rate
determined on such Auction Date shall be equal to the rate per annum
specified therein; or
(3) a lesser number of outstanding AMPS to be determined as set
forth in Paragraph 10(e)(ii)(C) if such specified rate per annum shall
be higher than the Maximum Applicable Rate and Sufficient Clearing Bids
do not exist.
(B) A Sell Order by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of outstanding AMPS specified in such Sell Order, or
(2) such number or a lesser number of outstanding AMPS to be
determined as set forth in Paragraph 10(e)(ii)(C) if Sufficient Clearing
Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable offer
to purchase:
(1) the number of outstanding AMPS specified in such Bid if the
Applicable Rate determined on such Auction Date shall be higher than the
rate per annum specified in such Bid; or
(2) such number or a lesser number of outstanding AMPS to be
determined as set forth in Paragraph 10(e)(i)(E) if the Applicable Rate
determined on such Auction Date shall be equal to the rate per annum
specified therein.
PARAGRAPH 10(c) Submission of Orders By Broker-Dealers to Auction Agent.
(i) Each Broker-Dealer shall submit in writing or through the Auction
Agent's Auction Processing System to the Auction Agent prior to the Submission
Deadline on each Auction Date all Orders obtained by such Broker-Dealer,
designating itself (unless otherwise permitted by the Fund) as an Existing
Holder in respect of shares subject to Orders submitted or deemed submitted to
it by Beneficial Owners and as a Potential Holder in respect of shares subject
to Orders submitted to it by Potential Beneficial Owners, and specifying with
respect to each Order:
(A) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Fund);
(B) the aggregate number of outstanding AMPS that are the subject of
such Order;
(C) to the extent that such Bidder is an Existing Holder
(1) the number of outstanding AMPS, if any, subject to any Hold
Order placed by such Existing Holder;
(2) the number of outstanding AMPS, if any, subject to any Bid
placed by such Existing Holder and the rate per annum specified in such
Bid; and
(3) the number of outstanding AMPS, if any, subject to any Sell
Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate per
annum specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more than three
figures to the right of the decimal point, the Auction Agent shall round such
rate up to the next highest one-thousandth (.001) of 1%.
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<PAGE> 115
(iii) If an Order or Orders covering all of the outstanding AMPS held by an
Existing Holder are not submitted to the Auction Agent prior to the Submission
Deadline, the Auction Agent shall deem a Hold Order (in the case of an Auction
relating to a Dividend Period which is not a Special Dividend Period of 28 days
or more) and a Sell Order (in the case of an Auction relating to a Special
Dividend Period of 28 days or more) to have been submitted on behalf of such
Existing Holder covering the number of outstanding AMPS held by such Existing
Holder and not subject to Orders submitted to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder covering in the
aggregate more than the number of outstanding AMPS held by such Existing Holder
are submitted to the Auction Agent, such Orders shall be considered valid as
follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder shall
be considered valid up to and including the number of outstanding AMPS held
by such Existing Holder; provided that if more than one Hold Order is
submitted on behalf of such Existing Holder and the number of AMPS subject
to such Hold Orders exceeds the number of outstanding AMPS held by such
Existing Holder, the number of AMPS subject to each of such Hold Orders
shall be reduced pro rata so that such Hold Orders, in the aggregate, cover
exactly the number of outstanding AMPS held by such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall be
considered valid, in the ascending order of their respective rates per
annum if more than one Bid is submitted on behalf of such Existing Holder,
up to and including the excess of the number of outstanding AMPS held by
such Existing Holder over the number of AMPS subject to any Hold Order
referred to in Paragraph 10(c)(iv)(A) above (and if more than one Bid
submitted on behalf of such Existing Holder specifies the same rate per
annum and together they cover more than the remaining number of shares that
can be the subject of valid Bids after application of Paragraph
10(c)(iv)(A) above and of the foregoing portion of this Paragraph
10(c)(iv)(B) to any Bid or Bids specifying a lower rate or rates per annum,
the number of shares subject to each of such Bids shall be reduced pro rata
so that such Bids, in the aggregate, cover exactly such remaining number of
shares); and the number of shares, if any, subject to Bids not valid under
this Paragraph 10(c)(iv)(B) shall be treated as the subject of a Bid by a
Potential Holder; and
(C) any Sell Order shall be considered valid up to and including the
excess of the number of outstanding AMPS held by such Existing Holder over
the number of AMPS subject to Hold Orders referred to in Paragraph
10(c)(iv)(A) and Bids referred to in Paragraph 10(c)(iv)(B); provided that
if more than one Sell Order is submitted on behalf of any Existing Holder
and the number of AMPS subject to such Sell Orders is greater than such
excess, the number of AMPS subject to each of such Sell Orders shall be
reduced pro rata so that such Sell Orders, in the aggregate, cover exactly
the number of AMPS equal to such excess.
(v) If more than one Bid is submitted on behalf of any Potential Holder,
each Bid submitted shall be a separate Bid with the rate per annum and number of
AMPS therein specified.
(vi) Any Order submitted by a Beneficial Owner or a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to
the Submission Deadline on any Auction Date shall be irrevocable.
PARAGRAPH 10(d) Determination of Sufficient Clearing Bids, Winning Bid Rate
and Applicable Rate.
(i) Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent shall assemble all Orders submitted or deemed submitted to it by
the Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as
a "Submitted Order") and shall determine:
(A) the excess of the total number of outstanding shares of AMPS over
the number of outstanding AMPS that are the subject of Submitted Hold
Orders (such excess being hereinafter referred to as the "Available AMPS");
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<PAGE> 116
(B) from the Submitted Orders whether the number of outstanding AMPS
that are the subject of Submitted Bids by Potential Holders specifying one
or more rates per annum equal to or lower than the Maximum Applicable Rate
exceeds or is equal to the sum of:
(1) the number of outstanding AMPS that are the subject of
Submitted Bids by Existing Holders specifying one or more rates per
annum higher than the Maximum Applicable Rate, and
(2) the number of outstanding AMPS that are subject to Submitted
Sell Orders (if such excess or such equality exists (other than because
the number of outstanding AMPS in clauses (1) and (2) above are each
zero because all of the outstanding AMPS are the subject of Submitted
Hold Orders), such Submitted Bids by Potential Holders hereinafter being
referred to collectively as "Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per annum
specified in the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders specifying the Winning
Bid Rate and all other submitted Bids from Existing Holders specifying
lower rates per annum were rejected, thus entitling such Existing
Holders to continue to hold the AMPS that are the subject of such
Submitted Bids, and
(2) each Submitted Bid from Potential Holders specifying the
Winning Bid Rate and all other Submitted Bids from Potential Holders
specifying lower rates per annum were accepted, thus entitling the
Potential Holders to purchase the AMPS that are the subject of such
Submitted Bids, would result in the number of shares subject to all
Submitted Bids specifying the Winning Bid Rate or a lower rate per annum
being at least equal to the Available AMPS.
(ii) Promptly after the Auction Agent has made the determinations pursuant
to Paragraph 10(d)(i), the Auction Agent shall advise the Fund of the Maximum
Applicable Rate and, based on such determinations, the Applicable Rate for the
next succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate for
the next succeeding Dividend Period shall be equal to the Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than because all
of the outstanding AMPS are the subject of Submitted Hold Orders), that the
Applicable Rate for the next succeeding Dividend Period shall be equal to
the Maximum Applicable Rate; or
(C) if all of the outstanding AMPS are the subject of Submitted Hold
Orders, that the Dividend Period next succeeding the Auction automatically
shall be the same length as the immediately preceding Dividend Period and
the Applicable Rate for the next succeeding Dividend Period shall be equal
to 40% of the Reference Rate (or 60% of such rate if the Fund has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend that net capital gains or other taxable
income will be included in such dividend on the AMPS) on the date of the
Auction.
PARAGRAPH 10(e) Acceptance and Rejection of Submitted Bids and Submitted
Sell Orders And Allocation of Shares.
Based on the determinations made pursuant to Paragraph 10(d)(i), the
Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the
Auction Agent shall take such other action as set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of Paragraph 10(e)(iii) and Paragraph 10(e)(iv), Submitted Bids
and Submitted Sell Orders shall be accepted or rejected in the following
order of priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be accepted
and the Submitted Bid of each of the Existing Holders specifying any
rate per annum that is higher than the Winning Bid Rate
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<PAGE> 117
shall be accepted, thus requiring each such Existing Holder to sell the
outstanding AMPS that are the subject of such Submitted Sell Order or
Submitted Bid;
(B) the Submitted Bid of each of the Existing Holder specifying any
rate per annum that is lower than the Winning Bid Rate shall be
rejected, thus entitling each such Existing Holder to continue to hold
the outstanding AMPS that are the subject of such Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders specifying
any rate per annum that is lower than the Winning Bid Rate shall be
accepted;
(D) the Submitted Bid of each of the Existing Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be rejected,
thus entitling each such Existing Holder to continue to hold the
outstanding AMPS that are the subject of such Submitted Bid, unless the
number of outstanding AMPS subject to all such Submitted Bids shall be
greater than the number of outstanding AMPS ("Remaining Shares") equal
to the excess of the Available AMPS over the number of outstanding AMPS
subject to Submitted Bids described in Paragraph 10(e)(i)(B) and
Paragraph 10(e)(i)(C), in which event the Submitted Bids of each such
Existing Holder shall be accepted, and each such Existing Holder shall
be required to sell outstanding AMPS, but only in an amount equal to the
difference between (1) the number of outstanding AMPS then held by such
Existing Holder subject to such Submitted Bid and (2) the number of AMPS
obtained by multiplying (x) the number of Remaining Shares by (y) a
fraction the numerator of which shall be the number of outstanding
shares of AMPS held by such Existing Holder subject to such Submitted
Bid and the denominator of which shall be the sum of the numbers of
outstanding AMPS subject to such Submitted Bids made by all such
Existing Holders that specified a rate per annum equal to the Winning
Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be accepted
but only in an amount equal to the number of outstanding AMPS obtained
by multiplying (x) the difference between the Available AMPS and the
number of outstanding AMPS subject to Submitted Bids described in
Paragraph 10(e)(i)(B), Paragraph 10(e)(i)(C) and Paragraph 10(e)(i)(D)
by (y) a fraction the numerator of which shall be the number of
outstanding AMPS subject to such Submitted Bid and the denominator of
which shall be the sum of the number of outstanding AMPS subject to such
Submitted Bids made by all such Potential Holders that specified rates
per annum equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than
because all of the outstanding AMPS are subject to Submitted Hold Orders),
subject to the provisions of Paragraph 10(e)(iii), Submitted Orders shall
be accepted or rejected as follows in the following order of priority and
all other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate
per annum that is equal to or lower than the Maximum Applicable Rate
shall be rejected, thus entitling such Existing Holder to continue to
hold the outstanding AMPS that are the subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any rate
per annum that is equal to or lower than the Maximum Applicable Rate
shall be accepted, thus requiring such Potential Holder to purchase the
outstanding AMPS that are the subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any rate
per annum that is higher than the Maximum Applicable Rate shall be
accepted and the Submitted Sell Orders of each Existing Holder shall be
accepted, in both cases only in an amount equal to the difference
between (1) the number of outstanding AMPS then held by such Existing
Holder subject to such Submitted Bid or Submitted Sell Order and (2) the
number of AMPS obtained by multiplying (x) the difference between the
Available AMPS and the aggregate number of outstanding AMPS subject to
Submitted Bids described in Paragraph 10(e)(ii)(A) and Paragraph
10(e)(ii)(B) by (y) a fraction the numerator of which shall be the
number of outstanding AMPS held by such Existing Holder
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subject to such Submitted Bid or Submitted Sell Order and the
denominator of which shall be the number of outstanding AMPS subject to
all such Submitted Bids and Submitted Sell Orders.
(iii) If, as a result of the procedures described in Paragraph
10(e)(i) or Paragraph 10(e)(ii), any Existing Holder would be entitled or
required to sell, or any Potential Holder would be entitled or required to
purchase, a fraction of a share of AMPS on any Auction Date, the Auction
Agent shall, in such manner as in its sole discretion it shall determine,
round up or down the number of shares of AMPS to be purchased or sold by
any Existing Holder or Potential Holder on such Auction Date so that each
outstanding AMPS purchased or sold by each Existing Holder or Potential
Holder on such Auction Date shall be a whole share of AMPS.
(iv) If, as a result of the procedures described in Paragraph
10(e)(i), any Potential Holder would be entitled or required to purchase
less than a whole share of AMPS on any Auction Date, the Auction Agent, in
such manner as in its sole discretion it shall determine, shall allocate
shares of AMPS for purchase among Potential Holders so that only whole
shares of AMPS are purchased on such Auction Date by any Potential Holder,
even if such allocation results in one or more of such Potential Holders
not purchasing any AMPS on such Auction Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell
Orders on behalf of Existing Holders or Potential Holders, the aggregate
number of the outstanding AMPS to be purchased and the aggregate number of
outstanding AMPS to be sold by such Potential Holders and Existing Holders
and, to the extent that such aggregate number of outstanding shares to be
purchased and such aggregate number of outstanding shares to be sold
differ, the Auction Agent shall determine to which other Broker-Dealer or
Broker-Dealers acting for one or more purchasers such Broker-Dealer shall
deliver, or from which other Broker-Dealer or Broker-Dealers acting for one
or more sellers such Broker-Dealer shall receive, as the case may be,
outstanding AMPS.
PARAGRAPH 10(f) Miscellaneous.
The Fund may interpret the provisions of this Paragraph 10 to resolve any
inconsistency or ambiguity, remedy any formal defect or make any other change or
modification that does not substantially adversely affect the rights of
Beneficial Owners of AMPS. A Beneficial Owner or an Existing Holder (A) may
sell, transfer or otherwise dispose of AMPS only pursuant to a Bid or Sell Order
in accordance with the procedures described in this Paragraph 10 or to or
through a Broker-Dealer, provided that in the case of all transfers other than
pursuant to Auctions such Beneficial Owner or Existing Holder, its
Broker-Dealer, if applicable, or its Agent Member advises the Auction Agent of
such transfer and (B) except as otherwise required by law, shall have the
ownership of the AMPS held by it maintained in book entry form by the Securities
Depository in the account of its Agent Member, which in turn will maintain
records of such Beneficial Owner's beneficial ownership. Neither the Fund nor
any Affiliate (other than Merrill Lynch, Pierce, Fenner & Smith Incorporated)
shall submit an Order in any Auction. Any Beneficial Owner that is an Affiliate
(other than Merrill Lynch, Pierce, Fenner & Smith Incorporated) shall not sell,
transfer or otherwise dispose of AMPS to any Person other than the Fund. All of
the outstanding AMPS of a Series shall be represented by a single certificate
registered in the name of the nominee of the Securities Depository unless
otherwise required by law or unless there is no Securities Depository. If there
is no Securities Depository, at the Fund's option and upon its receipt of such
documents as it deems appropriate, any AMPS may be registered in the Stock
Register in the name of the Beneficial Owner thereof and such Beneficial Owner
thereupon will be entitled to receive certificates therefor and required to
deliver certificates thereof or upon transfer or exchange thereof.
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PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(1) Financial Statements
Independent Auditors' Report
Statement of Assets, Liabilities and Capital as of June 15, 1999
Schedule of Investments as of July 23, 1999 (unaudited)
Financial Statements as of July 23, 1999 (unaudited)
(2) Exhibits:
<TABLE>
<CAPTION>
DESCRIPTION
-----------
<S> <C> <C>
(a)(1) -- Declaration of Trust of the Registrant.(a)
(2) -- Form of Certificate of Designation creating the Series A
AMPS.
(b) -- By-Laws of the Registrant.(a)
(c) -- Not applicable.
(d)(1) -- Portions of the Declaration of Trust, By-Laws and the
Certificate of Designation of the Registrant defining the
rights of holders of shares of the Registrant.(b)
(2) -- Form of specimen certificate for the AMPS of the
Registrant.(e)
(e) -- Form of Automatic Dividend Reinvestment Plan.(c)
(f) -- Not applicable.
(g) -- Form of Investment Advisory Agreement between the Registrant
and Fund Asset Management, L.P.(c)
(h)(1) -- Form of Purchase Agreement for the AMPS.(e)
(2) -- Merrill Lynch Standard Dealer Agreement.(c)
(i) -- Not applicable.
(j) -- Form of Custodian Contract between the Registrant and State
Street Bank and Trust Company.(d)
(k)(1) -- Form of Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between the
Registrant and State Street Bank and Trust Company.(d)
(2) -- Form of Auction Agent Agreement between the Registrant and
IBJ Schroder Bank & Trust Company.(e)
(3) -- Form of Broker-Dealer Agreement.(e)
(4) -- Form of Letter of Representations.(e)
(l) -- Opinion and Consent of Brown & Wood LLP, counsel to the
Registrant.
(m) -- Not applicable.
(n) -- Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.
(o) -- Not applicable.
(p) -- Certificate of Fund Asset Management, L.P.(d)
(q) -- Not applicable.
(r) -- Financial Data Schedule.
</TABLE>
- ---------------
(a) Reference is made to the Registrant's registration statement on Form N-2,
File Nos. 333-78141 and 811-09331 (the "Common Shares Registration
Statement") filed with the Securities and Exchange Commission on May 10,
1999.
(b) Reference is made to Section 3.4, Article V, Article VI (sections 1, 2, 4, 5
and 7), Article VIII, Article IX and Article X of the Registrant's
Declaration of Trust, previously filed as Exhibit (a) to the Common Shares
Registration Statement; and to Article II, Article III (sections 1, 2, 3, 5
and 17), Article VI, Article VII, Article XII, Article XIII and Article XIV
of the Registrant's By-Laws, previously filed as Exhibit (b) to the Common
Shares Registration Statement. Reference is also made to the Form of
Certificate of Designation filed hereto as Exhibit (a)(2).
(c) Reference is made to Pre-Effective Amendment No. 1 to Registrant's Common
Shares Registration Statement filed with the Securities and Exchange
Commission on May 18, 1999.
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(d) Reference is made to Pre-Effective Amendment No. 3 to Registrant's Common
Shares Registration Statement filed with the Securities and Exchange
Commission on July 20, 1999.
(e) Reference is made to the Registrant's registration statement on Form N-2,
File Nos. 333-81995 and 811-09331 filed with the Securities and Exchange
Commission on June 30, 1999.
ITEM 25. MARKETING ARRANGEMENTS.
See Exhibit (h).
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
<TABLE>
<S> <C>
Registration fees........................................... $ 9,730
Printing.................................................... 54,000
Legal fees and expenses..................................... 35,000
Rating Agency fees.......................................... 35,000
Miscellaneous............................................... 1,270
--------
Total............................................. $135,000
========
</TABLE>
--------------------
* To be filed by amendment.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The information in the Prospectus under the captions "Investment Advisory
and Management Arrangements" and "Description of Capital Shares-Common Shares"
and in Note 1 to the Statement of Assets, Liabilities and Capital is
incorporated herein by reference.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
RECORD HOLDERS
TITLE OF CLASS AT JULY 23, 1999
-------------- ----------------
<S> <C>
Common Shares, $.10 par value............................... 2
Preferred Shares, $.10 par value............................ 0
</TABLE>
ITEM 29. INDEMNIFICATION.
Section 5.3 of the Registrant's Declaration of Trust provides as follows:
"The Trust shall indemnify each of its Trustees, officers, employees,
and agents (including persons who serve at its request as directors,
officers or trustees of another organization in which it has any interest
as a shareholder, creditor or otherwise) against all liabilities and
expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably
incurred by him in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, in which he
may be involved or with which he may be threatened, while in office or
thereafter, by reason of his being or having been such a trustee, officer,
employee or agent, except with respect to any matter as to which he shall
have been adjudicated to have acted in bad faith, willful misfeasance,
gross negligence or reckless disregard of his duties; provided, however,
that as to any matter disposed of by a compromise payment by such person,
pursuant to a consent decree or otherwise, no indemnification either for
said payment or for any other expenses shall be provided unless the Trust
shall have received a written opinion from independent legal counsel
approved by the Trustees to the effect that if either the matter of willful
misfeasance, gross negligence or reckless disregard of duty, or the matter
of good faith and reasonable belief as to the best interests of the Trust,
had been adjudicated, it would have been adjudicated in favor of such
person. The rights accruing to any person under these provisions shall not
exclude any other right to which he may be lawfully entitled; provided that
no person may satisfy any right of indemnity or reimbursement granted
herein or in Section 5.1 or to which he may
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be otherwise entitled except out of the property of the Trust, and no
Shareholder shall be personally liable to any person with respect to any
claim for indemnity or reimbursement or otherwise. The Trustees may make
advance payments in connection with indemnification under this Section 5.3,
provided that the indemnified person shall have given a written undertaking
to reimburse the Trust in the event it is subsequently determined that he
is not entitled to such indemnification."
The Registrant's By-Laws provide that insofar as the conditional advancing
of indemnification moneys pursuant to Section 5.3 of the Declaration of Trust
for actions based upon the Investment Company Act of 1940 may be concerned, such
payments will be made only on the following conditions: (i) the advances must be
limited to amounts used, or to be used, for the preparation or presentation of a
defense to the action, including costs connected with the preparation of a
settlement; (ii) advances may be made only upon receipt of a written promise by,
or on behalf of, the recipient to repay that amount of the advance which exceeds
the amount to which it is ultimately determined he is entitled to receive from
the Registrant by reason of indemnification; and (iii) (a) such promise must be
secured by a surety bond, other suitable insurance or an equivalent form of
security which assures that any repayments may be obtained by the Registrant
without delay or litigation, which bond, insurance or other form of security
must be provided by the recipient of the advance, or (b) a majority of a quorum
of the Registrant's disinterested, non-party Trustees, or an independent legal
counsel in a written opinion, shall determine, based upon a review of readily
available facts, that the recipient of the advance ultimately will be found
entitled to indemnification.
In Section 8 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933 (the "1933 Act"), against certain types of civil
liabilities arising in connection with the Registration Statement or Prospectus.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "1933 Act") may be provided to trustees, officers and
controlling persons of the Fund, pursuant to the foregoing provisions or
otherwise, the Fund has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Fund of
expenses incurred or paid by a trustee, officer or controlling person of the
Fund in connection with any successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Fund will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
Reference is made to Section Six of the Purchase Agreement, a form of which
will be filed as Exhibit (h)(1) hereto, for provisions relating to the
indemnification of the underwriter.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
Fund Asset Management, L.P. (the "Investment Adviser"), acts as investment
adviser for the following open-end registered investment companies: CBA Money
Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal
Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund
Accumulation Program, Inc., Financial Institutions Series Trust, Merrill Lynch
Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill
Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income
Fund, Inc., and The Municipal Fund Accumulation Program, Inc., and for the
following closed-end registered investment companies: Apex Municipal Fund, Inc.,
Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate
High Yield Fund III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II,
Inc., Debt Strategies Fund III, Inc., Income Opportunities Fund 1999, Inc.,
Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund,
Inc., MuniAssets Fund, Inc.,
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MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc.,
MuniHoldings California Insured Fund, Inc., MuniHoldings California Insured Fund
II, Inc., MuniHoldings California Insured Fund III, Inc., MuniHoldings
California Insured Fund IV, Inc., MuniHoldings California Insured Fund V, Inc.,
Inc., MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III, MuniHoldings Florida Insured Fund IV,
MuniHoldings Florida Insured Fund V, MuniHoldings Insured Fund, Inc.,
MuniHoldings Insured Fund II, Inc., MuniHoldings Insured Fund III, Inc.,
MuniHoldings Michigan Insured Fund, Inc., MuniHoldings New Jersey Insured Fund,
Inc., MuniHoldings New Jersey Insured Fund II, Inc., MuniHoldings New Jersey
Insured Fund III, Inc., MuniHoldings New Jersey Insured Fund IV, Inc.,
MuniHoldings New York Fund, Inc., MuniHoldings New York Insured Fund, Inc.,
MuniHoldings New York Insured Fund II, Inc., MuniHoldings New York Insured Fund
III, Inc., MuniHoldings New York Insured Fund IV, Inc., MuniHoldings
Pennsylvania Insured Fund, MuniInsured Fund, Inc., MuniVest Florida Fund, Inc.,
MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest Michigan Insured Fund,
Inc., MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania Insured Fund,
MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield
California Insured Fund, Inc., MuniYield California Insured Fund II, Inc.,
MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc.,
MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan
Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey
Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New York
Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund,
Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc., and
Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management, L.P. ("MLAM"), an affiliate of the
Investment Adviser, acts as the investment adviser for the following open-end
registered investment companies: Merrill Lynch Adjustable Rate Securities Fund,
Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder
Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income
Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund,
Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch
Disciplined Equity Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch
EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global Bond
Fund for Investment and Retirement, Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global Holdings, Merrill
Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill
Lynch Global Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill
Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill
Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust,
Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill
Lynch Real Estate Fund, Inc., Merrill Lynch Retirement Series Trust, Merrill
Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc.,
Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series
Funds, Inc. and Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a
division of MLAM); and for the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc. and Merrill Lynch
Senior Floating Rate Fund, Inc., Merrill Lynch Senior Floating Rate Fund II,
Inc. MLAM also acts as sub-adviser to Merrill Lynch World Strategy Portfolio and
Merrill Lynch Basic Equity Portfolio, two investment portfolios of EQ Advisors
Trust.
The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Intermediate Government Bond
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. The
address of the Investment Adviser, MLAM, Princeton Services, Inc. ("Princeton
Services") and Princeton Administrators, L.P. is also P.O. Box 9011, Princeton,
New Jersey 08543-9011. The address of Princeton Funds Distributor, Inc. ("PFD")
and of Merrill Lynch Funds Distributor ("MLFD") is P.O. Box 9081, Princeton, New
Jersey 08543-9081. The address of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is
World Financial Center, North Tower, 250 Vesey Street, New York, New York
10281-1201.
C-4
<PAGE> 123
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person or entity has been engaged for
the past two years for his or her or its own account or in the capacity of
director, officer, employee, partner or trustee. In addition, Mr. Glenn is
President and Mr. Burke is Treasurer of all or substantially all of the
investment companies described in the first two paragraphs of this Item 30 and
also hold the same positions with all or substantially all of the investment
companies advised by MLAM as they do with those advised by the Investment
Adviser. Messrs. Giordano, Doll and Monagle are directors or officers of one or
more of such companies.
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------------------- ----------------------------------
<S> <C> <C>
ML & Co................................ Limited Partner Financial Services Holding
Company; Limited Partner of MLAM
Princeton Services..................... General Partner General Partner of MLAM
Jeffrey M. Peek........................ President President of MLAM, President and
Director of Princeton Services;
Executive Vice President of
ML&Co.; Managing Director and
Co-Head of the Investment Banking
Division of Merrill Lynch in 1997.
Terry K. Glenn......................... Executive Vice President Executive Vice President of MLAM;
Executive Vice President and
Director of Princeton Services;
President and Director of PFD;
Director of FDS; President of
Princeton Administrators, L.P.
Gregory A. Bundy....................... Chief Operating Officer and Chief Operating Officer and
Managing Director Managing Director of FAM; Chief
Operating Officer and Managing
Director of Princeton Services;
Co-CEO of Merrill Lynch Australia
from 1997 to 1999.
Donald C. Burke........................ Senior Vice President, Senior Vice President and
Treasurer and Director of Treasurer of MLAM; Senior Vice
Taxation President and Treasurer of
Princeton Services; Vice President
of PFD; First Vice President of
the Investment Adviser from 1997
to 1999; Vice President of the
Investment Adviser from 1990 to
1997
Michael G. Clark....................... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services; Treasurer and Director
of PFD; First Vice President of
the Investment Adviser from 1997
to 1999; Vice President of the
Investment Adviser from 1996 to
1997
</TABLE>
C-5
<PAGE> 124
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------------------- ----------------------------------
<S> <C> <C>
Robert C. Doll......................... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services; Chief Investment Officer
of Oppenheimer Funds, Inc. in 1999
and Executive Vice President
thereof from 1991 to 1999.
Linda L. Federici...................... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
Vincent R. Giordano.................... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
Michael J. Hennewinkel................. General Counsel Senior Vice President, General
and Secretary Counsel of MLAM; Senior Vice
President the MLAM International
Group
Philip L. Kirstein..................... Senior Vice President Senior Vice President of MLAM;
Senior Vice President, General
Counsel, Director and Secretary of
Princeton Services
Ronald M. Kloss........................ Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
Debra W. Landsman-Yaros................ Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services; Vice President of PFD
Stephen M. M. Miller................... Senior Vice President Executive Vice President of
Princeton Administrators, L.P.;
Senior Vice President of Princeton
Services
Joseph T. Monagle, Jr.................. Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
Brian A. Murdock....................... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services; Director of PFD
Gregory D. Upah........................ Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
</TABLE>
ITEM 31. LOCATION OF ACCOUNT AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules
promulgated thereunder are maintained at the offices of the Registrant (800
Scudders Mill Road, Plainsboro, New Jersey 08536), its investment adviser (800
Scudders Mill Road, Plainsboro, New Jersey 08536), and its custodian and
transfer agent.
ITEM 32. MANAGEMENT SERVICES.
Not applicable.
C-6
<PAGE> 125
ITEM 33. UNDERTAKINGS.
Registrant undertakes:
(1) For the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as a
part of a registration statement in reliance upon Rule 430A under the
Securities Act of 1933 and contained in the form of prospectus filed by the
Registrant pursuant to Rule 497(h) under the Securities Act of 1933 shall
be deemed to be part of the registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
C-7
<PAGE> 126
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Plainsboro, and State of New Jersey, on the 28th
day of July, 1999.
MUNIHOLDINGS FLORIDA INSURED FUND V
(Registrant)
By: /s/ TERRY K. GLENN
--------------------------------------
(Terry K. Glenn, President)
Each person whose signature appears below hereby authorizes Terry K. Glenn,
Donald C. Burke or William E. Zitelli, Jr., or any of them, as attorney-in-fact,
to sign on his or her behalf, individually and in each capacity stated below,
any amendment to this Registration Statement (including post-effective
amendments) and to file the same, with all exhibits thereto, with the Securities
and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ TERRY K. GLENN President (Principal Executive July 28, 1999
- --------------------------------------------------- Officer) and Trustee
(Terry K. Glenn)
/s/ DONALD C. BURKE Treasurer (Principal Financial July 28, 1999
- --------------------------------------------------- and Accounting Officer)
(Donald C. Burke)
/s/ RONALD W. FORBES Trustee July 28, 1999
- ---------------------------------------------------
(Ronald W. Forbes)
/s/ CYNTHIA A. MONTGOMERY Trustee July 28, 1999
- ---------------------------------------------------
(Cynthia A. Montgomery)
/s/ CHARLES C. REILLY Trustee July 28, 1999
- ---------------------------------------------------
(Charles C. Reilly)
/s/ KEVIN A. RYAN Trustee July 28, 1999
- ---------------------------------------------------
(Kevin A. Ryan)
/s/ RICHARD R. WEST Trustee July 28, 1999
- ---------------------------------------------------
(Richard R. West)
/s/ ARTHUR ZEIKEL Trustee July 28, 1999
- ---------------------------------------------------
(Arthur Zeikel)
</TABLE>
C-8
<PAGE> 127
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
(a)(2) -- Form of Certificate of Designation creating the Series A
AMPS
(l) -- Opinion and Consent of Brown & Wood LLP
(n) -- Consent of Deloitte & Touche LLP, independent auditors
for the Registrant
(r) -- Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT (a)(2)
MUNIHOLDINGS FLORIDA INSURED FUND V
CERTIFICATE OF DESIGNATION DATED, 1999
ESTABLISHING POWERS, QUALIFICATIONS, RIGHTS
AND PREFERENCES OF TWO SERIES OF AUCTION MARKET
PREFERRED SHARES ("AMPS(R)")
WHEREAS the Board of Trustees of MuniHoldings Florida Insured Fund V (the
"Trust") is expressly empowered pursuant to Section 6.1 of the Trust's
Declaration of Trust to authorize the issuance of preferred shares of the Trust
in one or more series, with such preferences, powers, restrictions, limitations
or qualifications as determined by the Board of Trustees and as set forth in the
resolution or resolutions providing for the issuance of such preferred shares.
AND WHEREAS the Board of Trustees has determined that it is in the best
interests of the Trust to issue two series of such preferred shares.
NOW THEREFORE, the Board of Trustees does hereby authorize the issuance
of two series of preferred shares, par value $0.10 per share, liquidation
preference $25,000 per share plus an amount equal to accumulated but unpaid
dividends thereon (whether or not earned or declared), to be designated
respectively: Auction Market Preferred Shares, Series A; and Auction Market
Preferred Shares, Series B.
The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the
preferred shares are as follows:
DESIGNATION
Series A: A series of ______ preferred shares, par value $.10 per share,
liquidation preference $25,000 per share plus an amount equal to accumulated but
unpaid dividends (whether or not earned or declared) thereon, is hereby
designated "Auction Market Preferred Shares, Series A." Each Auction Market
Preferred Share, Series A (sometimes referred to herein as "Series A AMPS")
shall be issued on a date to be determined by the Board of Trustees of the Trust
or pursuant to their delegated authority; have an Initial Dividend Rate and an
Initial Dividend Payment Date as shall be determined in advance of the issuance
thereof by the Board of Trustees of the Trust or pursuant to their delegated
authority; and have such other preferences, voting powers, limitations as to
dividends, qualifications and terms and conditions of redemption
- ---------------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 2
as are set forth in this Certificate of Designation. The Auction Market
Preferred Shares, Series A shall constitute a separate series of preferred
shares of the Trust, and each Auction Market Preferred Share, Series A shall be
identical.
Series B: A series of _______ preferred shares, par value $.10 per share,
liquidation preference $25,000 per share plus an amount equal to accumulated but
unpaid dividends (whether or not earned or declared) thereon, is hereby
designated "Auction Market Preferred Shares, Series B." Each Auction Market
Preferred Share, Series B (sometimes referred to herein as "Series B AMPS")
shall be issued on a date to be determined by the Board of Trustees of the Trust
or pursuant to their delegated authority; have an Initial Dividend Rate and an
Initial Dividend Payment Date as shall be determined in advance of the issuance
thereof by the Board of Trustees of the Trust or pursuant to their delegated
authority; and have such other preferences, voting powers, limitations as to
dividends, qualifications and terms and conditions of redemption as are set
forth in this Certificate of Designation. The Auction Market Preferred Shares,
Series B shall constitute a separate series of preferred shares of the Trust,
and each Auction Market Preferred Share, Series B shall be identical.
1. Definitions. (a) Unless the context or use indicates another or
different meaning or intent, in this Certificate of Designation the following
terms have the following meanings, whether used in the singular or plural:
"'AA' Composite Commercial Paper Rate," on any date of determination,
means (i) the Interest Equivalent of the rate on commercial paper placed on
behalf of issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's
or the equivalent of such rating by another nationally recognized rating agency,
as such rate is made available on a discount basis or otherwise by the Federal
Reserve Bank of New York for the Business Day immediately preceding such date,
or (ii) in the event that the Federal Reserve Bank of New York does not make
available such a rate, then the arithmetic average of the Interest Equivalent of
the rate on commercial paper placed on behalf of such issuers, as quoted on a
discount basis or otherwise by Merrill Lynch, Pierce, Fenner & Smith
Incorporated or its successors that are Commercial Paper Dealers, to the Auction
Agent for the close of business on the Business Day immediately preceding such
date. If one of the Commercial Paper Dealers does not quote a rate required to
determine the "AA" Composite Commercial Paper Rate, the "AA" Composite
Commercial
2
<PAGE> 3
Paper Rate will be determined on the basis of the quotation or quotations
furnished by any Substitute Commercial Paper Dealer or Substitute Commercial
Paper Dealers selected by the Trust to provide such rate or rates not being
supplied by the Commercial Paper Dealer. If the number of Dividend Period days
shall be (i) 7 or more but fewer than 49 days, such rate shall be the Interest
Equivalent of the 30-day rate on such commercial paper; (ii) 49 or more but
fewer than 70 days, such rate shall be the Interest Equivalent of the 60-day
rate on such commercial paper; (iii) 70 or more days but fewer than 85 days,
such rate shall be the arithmetic average of the Interest Equivalent on the
60-day and 90-day rates on such commercial paper; (iv) 85 or more days but fewer
than 99 days, such rate shall be the Interest Equivalent of the 90-day rate on
such commercial paper; (v) 99 or more days but fewer than 120 days, such rate
shall be the arithmetic average of the Interest Equivalent of the 90-day and
120-day rates on such commercial paper; (vi) 120 or more days but fewer than 141
days, such rate shall be the Interest Equivalent of the 120-day rate on such
commercial paper; (vii) 141 or more days but fewer than 162 days, such rate
shall be the arithmetic average of the Interest Equivalent of the 120-day and
180-day rates on such commercial paper; and (viii) 162 or more days but fewer
than 183 days, such rate shall be the Interest Equivalent of the 180-day rate on
such commercial paper.
"Accountant's Confirmation" has the meaning set forth in paragraph 7(c)
of this Certificate of Designation.
"Additional Dividend" has the meaning set forth in paragraph 2(e) of this
Certificate of Designation.
"Adviser" means the Trust's investment adviser which initially shall be
Fund Asset Management, L.P.
"Affiliate" means any Person, other than Merrill Lynch, Pierce, Fenner &
Smith Incorporated or its successors, known to the Auction Agent to be
controlled by, in control of, or under common control with, the Trust.
"Agent Member" means a member of the Securities Depository that will act
on behalf of a Beneficial Owner of one or more AMPS or a Potential Beneficial
Owner.
"AMPS" means, as the case may be, the Auction Market Preferred Shares,
Series A; or the Auction Market Preferred Shares, Series B.
3
<PAGE> 4
"AMPS Basic Maintenance Amount," as of any Valuation Date, means the
dollar amount equal to (i) the sum of (A) the product of the number of AMPS of
each series and Other AMPS Outstanding on such Valuation Date multiplied by the
sum of (a) $25,000 and (b) any applicable redemption premium attributable to the
designation of a Premium Call Period; (B) the aggregate amount of cash dividends
(whether or not earned or declared) that will have accumulated for each share of
AMPS and Other AMPS Outstanding, in each case, to (but not including) the end of
the current Dividend Period for each series of AMPS that follows such Valuation
Date in the event the then current Dividend Period will end within 49 calendar
days of such Valuation Date or through the 49th day after such Valuation Date in
the event the then current Dividend Period for each series of AMPS will not end
within 49 calendar days of such Valuation Date; (C) in the event the then
current Dividend Period will end within 49 calendar days of such Valuation Date,
the aggregate amount of cash dividends that would accumulate at the Maximum
Applicable Rate applicable to a Dividend Period of 28 or fewer days on any AMPS
and Other AMPS Outstanding from the end of such Dividend Period through the 49th
day after such Valuation Date, multiplied by the larger of the Moody's
Volatility Factor and the S&P Volatility Factor, determined from time to time by
Moody's and S&P, respectively (except that if such Valuation Date occurs during
a Non-Payment Period, the cash dividend for purposes of calculation would
accumulate at the then current Non-Payment Period Rate); (D) the amount of
anticipated expenses of the Trust for the 90 days subsequent to such Valuation
Date (including any premiums payable with respect to a Policy); (E) the amount
of the Trust's Maximum Potential Additional Dividend Liability as of such
Valuation Date; and (F) any current liabilities as of such Valuation Date to the
extent not reflected in any of (i)(A) through (i)(E) (including, without
limitation, and immediately upon determination, any amounts due and payable by
the Trust pursuant to repurchase agreements and any amounts payable for Florida
Municipal Bonds or Municipal Bonds purchased as of such Valuation Date) less
(ii) either (A) the Discounted Value of any of the Trust's assets, or (B) the
face value of any of the Trust's assets if such assets mature prior to or on the
date of redemption of AMPS or payment of a liability and are either securities
issued or guaranteed by the United States Government or Deposit Securities, in
both cases irrevocably deposited by the Trust for the payment of the amount
needed to redeem AMPS subject to redemption or to satisfy any of (i)(B) through
(i)(F). For Moody's and S&P, the Trust shall include as a liability an amount
calculated semi-annually equal to 150% of the estimated cost of obtaining other
insurance guaranteeing the
4
<PAGE> 5
timely payment of interest on a Moody's Eligible Asset or S&P Eligible Asset and
principal thereof to maturity with respect to Moody's Eligible Assets and S&P
Eligible Assets that (i) are covered by a Policy which provides the Trust with
the option to obtain such other insurance and (ii) are discounted by a Moody's
Discount Factor or an S&P Discount Factor determined, as the case may be, by
reference to the insurance claims-paying ability rating of the issuer of such
Policy.
"AMPS Basic Maintenance Cure Date," with respect to the failure by the
Trust to satisfy the AMPS Basic Maintenance Amount (as required by paragraph
7(a) of this Certificate of Designation) as of a given Valuation Date, means the
sixth Business Day following such Valuation Date.
"AMPS Basic Maintenance Report" means a report signed by any of the
President, Treasurer, any Senior Vice President or any Vice President of the
Trust which sets forth, as of the related Valuation Date, the assets of the
Trust, the Market Value and the Discounted Value thereof (seriatim and in
aggregate), and the AMPS Basic Maintenance Amount.
"Anticipation Notes" shall mean the following Florida Municipal Bonds:
revenue anticipation notes, tax anticipation notes, tax and revenue anticipation
notes, grant anticipation notes and bond anticipation notes.
"Applicable Percentage" has the meaning set forth in paragraph 10(a)(vii)
of this Certificate of Designation.
"Applicable Rate" means the rate per annum at which cash dividends are
payable on the AMPS or Other AMPS, as the case may be, for any Dividend Period.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means IBJ Whitehall Bank & Trust Company unless and until
another commercial bank, trust company or other financial institution appointed
by a resolution of the Board of Trustees of the Trust or a duly authorized
committee thereof enters into an agreement with the Trust to follow the Auction
Procedures for the purpose of determining the Applicable Rate and to act as
transfer agent, registrar, dividend disbursing agent and redemption agent for
the AMPS and Other AMPS.
5
<PAGE> 6
"Auction Procedures" means the procedures for conducting Auctions set
forth in paragraph 10 of this Certificate of Designation.
"Beneficial Owner" means a customer of a Broker-Dealer who is listed on
the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a
holder of AMPS or a Broker-Dealer that holds AMPS for its own account.
"Broker-Dealer" means any broker-dealer, or other entity permitted by law
to perform the functions required of a Broker-Dealer in paragraph 10 of this
Certificate of Designation, that has been selected by the Trust and has entered
into a Broker-Dealer Agreement with the Auction Agent that remains effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent
and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the
procedures specified in paragraph 10 of this Certificate of Designation.
"Business Day" means a day on which the New York Stock Exchange, Inc. is
open for trading and which is not a Saturday, Sunday or other day on which banks
in The City of New York are authorized or obligated by law to close.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and such other commercial paper dealer or dealers as the Trust may
from time to time appoint, or, in lieu of any thereof, their respective
affiliates or successors.
"Common Shares" means the common shares of beneficial interest, par value
$.10 per share, of the Trust.
"Date of Original Issue" means, with respect to any share of AMPS or
Other AMPS, the date on which the Trust originally issues such share.
"Declaration" means the Declaration of Trust, as amended and supplemented
(including this Certificate of Designation), of the Trust on file with the
office of the Secretary of State of the Commonwealth of Massachusetts.
6
<PAGE> 7
"Deposit Securities" means cash and Florida Municipal Bonds and Municipal
Bonds rated at least A2 (having a remaining maturity of 12 months or less), P-1,
VMIG-1 or MIG-1 by Moody's or A (having a remaining maturity of 12 months or
less), A-1+ or SP-1+ by S&P.
"Discounted Value" means (i) with respect to an S&P Eligible Asset, the
quotient of the Market Value thereof divided by the applicable S&P Discount
Factor and (ii) with respect to a Moody's Eligible Asset, the lower of par and
the quotient of the Market Value thereof divided by the applicable Moody's
Discount Factor.
"Dividend Payment Date," with respect to AMPS, has the meaning set forth
in paragraph 2(b)(i) of this Certificate of Designation and, with respect to
Other AMPS, has the equivalent meaning.
"Dividend Period" means the Initial Dividend Period, any 7-Day Dividend
Period and any Special Dividend Period.
"Existing Holder" means a Broker-Dealer or any such other Person as may
be permitted by the Trust that is listed as the holder of record of AMPS in the
Share Books.
"Fitch" means Fitch IBCA, Inc. or its successors.
"Florida Municipal Bonds" means Municipal Bonds issued by or on behalf of
the State of Florida, its political subdivisions, agencies and instrumentalities
and by other qualifying issuers that pay interest which, in the opinion of bond
counsel to the issuer, is exempt from Federal income taxes and Florida
intangible personal property taxes, and includes Inverse Floaters.
"Forward Commitment" has the meaning set forth in paragraph 8(c) of this
Certificate of Designation.
"Holder" means a Person identified as a holder of record of AMPS in the
Share Register.
"Independent Accountant" means a nationally recognized accountant, or
firm of accountants, that is, with respect to the Trust, an independent public
accountant or firm of independent public accountants under the Securities Act of
1933, as amended.
"Initial Dividend Payment Date" means the Initial Dividend Payment Date
as determined by the Board of Trustees of the Trust with respect to each series
of AMPS or other AMPS, as the case may be.
7
<PAGE> 8
"Initial Dividend Period," with respect to each series of AMPS, has the
meaning set forth in paragraph 2(c)(i) of this Certificate of Designation and,
with respect to Other AMPS, has the equivalent meaning.
"Initial Dividend Rate," with respect to each series of AMPS, means the
rate per annum applicable to the Initial Dividend Period for such series of AMPS
and, with respect to Other AMPS, has the equivalent meaning.
"Initial Margin" means the amount of cash or securities deposited with a
broker as a margin payment at the time of purchase or sale of a futures
contract.
"Interest Equivalent" means a yield on a 360-day basis of a discount
basis security which is equal to the yield on an equivalent interest-bearing
security.
"Inverse Floaters" means trust certificates or other instruments
evidencing interests in one or more Florida Municipal Bonds that qualify as S&P
Eligible Assets (and are not part of a private placement of Municipal Bonds and
satisfy the issuer and original issue size requirements of clause (vi) of the
definition of S&P Eligible Assets) the interest rates on which are adjusted at
short term intervals on a basis that is inverse to the simultaneous readjustment
of the interest rates on corresponding floating rate trust certificates or other
instruments issued by the same issuer, provided that the ratio of the aggregate
dollar amount of floating rate instruments to inverse floating rate instruments
issued by the same issuer does not exceed one to one at their time of original
issuance unless the floating instruments have only one reset remaining until
maturity.
"Long Term Dividend Period" means a Special Dividend Period consisting of
a specified period of one whole year or more but not greater than five years.
"Mandatory Redemption Price" means $25,000 per share of AMPS plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) to the date fixed for redemption and excluding Additional Dividends.
"Marginal Tax Rate" means the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate, whichever is greater.
"Market Value" of any asset of the Trust shall be the market value
thereof determined by the Pricing Service. Market Value of any asset shall
include any interest accrued thereon. The Pricing Service shall value portfolio
securities at the quoted bid prices or the mean between the
8
<PAGE> 9
quoted bid and asked price or the yield equivalent when quotations are not
readily available. Securities for which quotations are not readily available
shall be valued at fair value as determined by the Pricing Service using methods
which include consideration of: yields or prices of municipal bonds of
comparable quality, type of issue, coupon, maturity and rating; indications as
to value from dealers; and general market conditions. The Pricing Service may
employ electronic data processing techniques and/or a matrix system to determine
valuations. In the event the Pricing Service is unable to value a security, the
security shall be valued at the lower of two dealer bids obtained by the Trust
from dealers who are members of the National Association of Securities Dealers,
Inc. and who make a market in the security, at least one of which shall be in
writing. Futures contracts and options are valued at closing prices for such
instruments established by the exchange or board of trade on which they are
traded, or if market quotations are not readily available, are valued at fair
value on a consistent basis using methods determined in good faith by the Board
of Trustees.
"Maximum Applicable Rate," with respect to AMPS, has the meaning set
forth in paragraph 10(a)(vii) of this Certificate of Designation and, with
respect to Other AMPS, has the equivalent meaning.
"Maximum Potential Additional Dividend Liability," as of any Valuation
Date, means the aggregate amount of Additional Dividends that would be due if
the Trust were to make Retroactive Taxable Allocations, with respect to any
fiscal year, estimated based upon dividends paid and the amount of undistributed
realized net capital gains and other taxable income earned by the Trust, as of
the end of the calendar month immediately preceding such Valuation Date and
assuming such Additional Dividends are fully taxable.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Moody's Discount Factor" means, for purposes of determining the
Discounted Value of any Florida Municipal Bond or Municipal Bond which
constitutes a Moody's Eligible Asset, the percentage determined by reference to
(a)(i) the rating by Moody's or S&P on such Bond or (ii) in the event the
Moody's Eligible Asset is insured under a Policy and the terms of the Policy
permit the Trust, at its option, to obtain other insurance guaranteeing the
timely payment of interest on such Moody's Eligible Asset and principal thereof
to maturity, the Moody's insurance claims-paying ability rating of the issuer of
the Policy or (iii) in the event the Moody's Eligible
9
<PAGE> 10
Asset is insured under an insurance policy which guarantees the timely payment
of interest on such Moody's Eligible Asset and principal thereof to maturity,
the Moody's insurance claims-paying ability rating of the issuer of the
insurance policy (provided that for purposes of clauses (ii) and (iii) if the
insurance claims-paying ability of an issuer of a Policy or insurance policy is
not rated by Moody's but is rated by S&P, such issuer shall be deemed to have a
Moody's insurance claims-paying ability rating which is two full categories
lower than the S&P insurance claims-paying ability rating) and (b) the Moody's
Exposure Period, in accordance with the table set forth below:
<TABLE>
<CAPTION>
Rating Category
--------------------------------------------------
Moody's Exposure Period Aaa* Aa* A* Baa* Other** VMIG-1*** SP-1+***
----------------------- ---- --- -- ---- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks or less.................... 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but
greater than seven weeks........... 154 164 173 205 235 137 149
9 weeks or less but
greater than eight weeks........... 158 169 179 209 242 138 150
</TABLE>
- -----------
* Moody's rating.
** Florida Municipal Bonds and Municipal Bonds not rated by Moody's but rated
BBB or BBB+ by S&P.
*** Florida Municipal Bonds and Municipal Bonds rated MIG-1, VMIG-1 or P-1 or,
if not rated by Moody's, rated SP-1+ or A-1+ by S&P which do not mature or
have a demand feature at par exercisable within the Moody's Exposure Period
and which do not have a long-term rating. For the purposes of the definition
of Moody's Eligible Assets, these securities will have an assumed rating of
"A" by Moody's.
; provided, however, in the event a Moody's Discount Factor applicable to a
Moody's Eligible Asset is determined by reference to an insurance claims-paying
ability rating in accordance with clause (a)(ii) or (a)(iii), such Moody's
Discount Factor shall be increased by an amount equal to 50% of the difference
between (a) the percentage set forth in the foregoing table under the applicable
rating category and (b) the percentage set forth in the foregoing table under
the rating category which is one category lower than the applicable rating
category.
Notwithstanding the foregoing, (i) a 102% Moody's Discount Factor will be
applied to short-term Florida Municipal Bonds and short-term Municipal Bonds, so
long as such Florida Municipal Bonds and Municipal Bonds are rated at least
MIG-1, VMIG-1 or P-1 by Moody's and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and the Moody's Discount Factor
for such Bonds will be 125% if such Bonds are not rated by Moody's but are rated
A-1+ or SP-1+ or AA by S&P and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and (ii) no Moody's Discount
Factor will be applied to cash or to Receivables for Florida Municipal Bonds or
Municipal Bonds Sold.
10
<PAGE> 11
"Receivables for Florida Municipal Bonds or Municipal Bonds Sold," for purposes
of calculating Moody's Eligible Assets as of any Valuation Date, means no more
than the aggregate of the following: (i) the book value of receivables for
Florida Municipal Bonds or Municipal Bonds sold as of or prior to such Valuation
Date if such receivables are due within five Business Days of such Valuation
Date, and if the trades which generated such receivables are (x) settled through
clearing house firms with respect to which the Trust has received prior written
authorization from Moody's or (y) with counterparties having a Moody's long-term
debt rating of at least Baa3; and (ii) the Moody's Discounted Value of Florida
Municipal Bonds or Municipal Bonds sold as of or prior to such Valuation Date
which generated receivables, if such receivables are due within five Business
Days of such Valuation Date but do not comply with either of conditions (x) or
(y) of the preceding clause (i).
"Moody's Eligible Asset" means cash, Receivables for Florida Municipal
Bonds or Municipal Bonds Sold, a Florida Municipal Bond or a Municipal Bond that
(i) pays interest in cash, (ii) is publicly rated Baa or higher by Moody's or,
if not rated by Moody's but rated by S&P, is rated at least BBB by S&P (provided
that, for purposes of determining the Moody's Discount Factor applicable to any
such S&P-rated Florida Municipal Bond or S&P-rated Municipal Bond, such Florida
Municipal Bond or Municipal Bond (excluding any short-term Florida Municipal
Bond or Municipal Bond) will be deemed to have a Moody's rating which is one
full rating category lower than its S&P rating), (iii) does not have its Moody's
rating suspended by Moody's; and (iv) is part of an issue of Florida Municipal
Bonds or Municipal Bonds of at least $10,000,000. In addition, Florida Municipal
Bonds and Municipal Bonds in the Trust's portfolio must be within the following
diversification requirements in order to be included within Moody's Eligible
Assets:
<TABLE>
<CAPTION>
Minimum Maximum Maximum Maximum Maximum
Issue Size Underlying Issue Type County State or Territory
Rating ($ Millions) Obligor (%) (1) Concentration (%) (1) (3) Concentration (%) (1) (4) Concentration (1) (5)
- ------ ------------ --------------- ------------------------- ------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Aaa......... 10 100 100 100 100
Aa.......... 10 20 60 60 60
A........... 10 10 40 40 40
Baa......... 10 6 20 20 20
Other(2).... 10 4 12 12 12
</TABLE>
- ---------------------
(1) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category.
(2) Florida Municipal Bonds and Municipal Bonds not rated by Moody's but rated
BBB or BBB+ by S&P.
(3) Does not apply to general obligation bonds.
(4) Applicable to general obligation bonds only.
(5) Does not apply to Florida Municipal Bonds. Territorial bonds (other than
those issued by Puerto Rico and counted collectively) are each limited to
10% of Moody's Eligible Assets. For diversification purposes, Puerto Rico
will be treated as a state.
11
<PAGE> 12
For purposes of the maximum underlying obligor requirement described above, any
Florida Municipal Bond or Municipal Bond backed by the guaranty, letter of
credit or insurance issued by a third party will be deemed to be issued by such
third party if the issuance of such third party credit is the sole determinant
of the rating on such Bond. For purposes of the issue type concentration
requirement described above, Florida Municipal Bonds and Municipal Bonds will be
classified within one of the following categories: health care issues (teaching
and non-teaching hospitals, public and private), housing issues (single- and
multi-family), educational facilities issues (public and private schools),
student loan issues, resource recovery issues, transportation issues (mass
transit, airport and highway bonds), industrial revenue/pollution control bond
issues, utility issues (including water, sewer and electricity), general
obligation issues, lease obligations/certificates of participation, escrowed
bonds and other issues ("Other Issues") not falling within one of the
aforementioned categories (includes special obligations to crossover, excise and
sales tax revenue, recreation revenue, special assessment and telephone revenue
bonds). In no event shall (a) more than 10% of Moody's Eligible Assets consist
of student loan issues, (b) more than 10% of Moody's Eligible Assets consist of
resource recovery issues or (c) more than 10% of Moody's Eligible Assets consist
of Other Issues.
When the Trust sells a Florida Municipal Bond or Municipal Bond and
agrees to repurchase it at a future date, the Discounted Value of such Bond will
constitute a Moody's Eligible Asset and the amount the Trust is required to pay
upon repurchase of such Bond will count as a liability for purposes of
calculating the AMPS Basic Maintenance Amount. For so long as the AMPS are rated
by Moody's, the Trust will not enter into any such reverse repurchase agreements
unless it has received written confirmation from Moody's that such transactions
would not impair the ratings then assigned the AMPS by Moody's. When the Trust
purchases a Florida Municipal Bond or Municipal Bond and agrees to sell it at a
future date to another party, cash receivable by the Trust thereby will
constitute a Moody's Eligible Asset if the long-term debt of such other party is
rated at least A2 by Moody's and such agreement has a term of 30 days or less;
otherwise the Discounted Value of such Bond will constitute a Moody's Eligible
Asset.
Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset if it is (i) held in a margin account, (ii) subject to any
material lien, mortgage, pledge, security
12
<PAGE> 13
interest or security agreement of any kind, (iii) held for the purchase of a
security pursuant to a Forward Commitment or (iv) irrevocably deposited by the
Trust for the payment of dividends or redemption.
"Moody's Exposure Period" means a period that is the same length or
longer than the number of days used in calculating the cash dividend component
of the AMPS Basic Maintenance Amount and shall initially be the period
commencing on and including a given Valuation Date and ending 48 days
thereafter.
"Moody's Hedging Transactions" has the meaning set forth in paragraph
8(b) of this Certificate of Designation.
"Moody's Volatility Factor" means 272% as long as there has been no
increase enacted to the Marginal Tax Rate. If such an increase is enacted but
not yet implemented, the Moody's Volatility Factor shall be as follows:
<TABLE>
<CAPTION>
% Change in
Marginal Tax Moody's Volatility
Rate Factor
-------------- ------------------
<S> <C> <C>
<5% 292%
-
>5% but <10% 313%
-
>10% but <15% 338%
-
>15% but <20% 364%
-
>20% but <25% 396%
-
>25% but <30% 432%
-
>30% but <35% 472%
-
>35% but <40% 520%
-
</TABLE>
Notwithstanding the foregoing, the Moody's Volatility Factor may mean such other
potential dividend rate increase factor as Moody's advises the Trust in writing
is applicable.
"Municipal Bonds" means "Municipal Bonds" as defined in the Trust's
Registration Statement on Form N-2 (File No. 333- ) relating to the AMPS on file
with the Securities and Exchange Commission, as such Registration Statement may
be amended from time to time, as well as short-term municipal obligations and
Inverse Floaters.
"Municipal Index" has the meaning set forth in paragraph 8(a) of this
Certificate of Designation.
"1940 Act" means the Investment Company Act of 1940, as amended from time
to time.
13
<PAGE> 14
"1940 Act AMPS Asset Coverage" means asset coverage, as defined in
section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding
senior securities of the Trust which are shares of beneficial interest,
including all outstanding AMPS and Other AMPS (or such other asset coverage as
may in the future be specified in or under the 1940 Act as the minimum asset
coverage for senior securities which are stock of a closed-end investment
company as a condition of paying dividends on its common stock).
"1940 Act Cure Date," with respect to the failure by the Trust to
maintain the 1940 Act AMPS Asset Coverage (as required by paragraph 6 of this
Certificate of Designation) as of the last Business Day of each month, means the
last Business Day of the following month.
"Non-Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions."
"Non-Payment Period" means, with respect to each series of AMPS, any
period commencing on and including the day on which the Trust shall fail to (i)
declare, prior to the close of business on the second Business Day preceding any
Dividend Payment Date, for payment on or (to the extent permitted by paragraph
2(c)(i) of this Certificate of Designation) within three Business Days after
such Dividend Payment Date to the Holders as of 12:00 noon, New York City time,
on the Business Day preceding such Dividend Payment Date, the full amount of any
dividend on AMPS payable on such Dividend Payment Date or (ii) deposit,
irrevocably in trust, in same-day funds, with the Auction Agent by 12:00 noon,
New York City time, (A) on such Dividend Payment Date the full amount of any
cash dividend on such shares payable (if declared) on such Dividend Payment Date
or (B) on any redemption date for any AMPS called for redemption, the Mandatory
Redemption Price per share of such AMPS or, in the case of an optional
redemption, the Optional Redemption Price per share, and ending on and including
the Business Day on which, by 12:00 noon, New York City time, all unpaid cash
dividends and unpaid redemption prices shall have been so deposited or shall
have otherwise been made available to Holders in same-day funds; provided that,
a Non-Payment Period shall not end unless the Trust shall have given at least
five days' but no more than 30 days' written notice of such deposit or
availability to the Auction Agent, all Existing Holders (at their addresses
appearing in the Share Books) and the Securities Depository. Notwithstanding the
foregoing, the failure by the Trust to deposit funds as provided for by clauses
(ii)(A) or (ii)(B)
14
<PAGE> 15
above within three Business Days after any Dividend Payment Date or redemption
date, as the case may be, in each case to the extent contemplated by paragraph
2(c)(i) of this Certificate of Designation, shall not constitute a "Non-Payment
Period."
"Non-Payment Period Rate" means, initially, 200% of the applicable
Reference Rate (or 275% of such rate if the Trust has provided notification to
the Auction Agent prior to the Auction establishing the Applicable Rate for any
dividend pursuant to paragraph 2(f) hereof that net capital gains or other
taxable income will be included in such dividend on AMPS), provided that the
Board of Trustees of the Trust shall have the authority to adjust, modify, alter
or change from time to time the initial Non-Payment Period Rate if the Board of
Trustees of the Trust determines and Moody's and S&P (and any Substitute Rating
Agency in lieu of Moody's or S&P in the event either of such parties shall not
rate the AMPS) advise the Trust in writing that such adjustment, modification,
alteration or change will not adversely affect their then-current ratings on the
AMPS.
"Normal Dividend Payment Date" has the meaning set forth in paragraph
2(b)(i) of this Certificate of Designation.
"Notice of Redemption" means any notice with respect to the redemption of
AMPS pursuant to paragraph 4 of this Certificate of Designation.
"Notice of Revocation" has the meaning set forth in paragraph 2(c)(iii)
of this Certificate of Designation.
"Notice of Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of this Certificate of Designation.
"Optional Redemption Price" means $25,000 per share plus an amount equal
to accumulated but unpaid dividends (whether or not earned or declared) to the
date fixed for redemption and excluding Additional Dividends plus any applicable
redemption premium attributable to the designation of a Premium Call Period.
"Other AMPS" means the auction rate preferred shares of the Trust, other
than the AMPS.
"Outstanding" means, as of any date (i) with respect to AMPS, AMPS
theretofore issued by the Trust except, without duplication, (A) any AMPS
theretofore cancelled or delivered to the
15
<PAGE> 16
Auction Agent for cancellation, or redeemed by the Trust, or as to which a
Notice of Redemption shall have been given and Deposit Securities shall have
been deposited in trust or segregated by the Trust pursuant to paragraph 4(c)
and (B) any AMPS as to which the Trust or any Affiliate thereof shall be a
Beneficial Owner, provided that AMPS held by an Affiliate shall be deemed
outstanding for purposes of calculating the AMPS Basic Maintenance Amount and
(ii) with respect to other Preferred Shares, has the equivalent meaning.
"Parity Shares" means the AMPS and each other outstanding series of
Preferred Shares the holders of which, together with the holders of the AMPS,
shall be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to the
full respective preferential amounts to which they are entitled, without
preference or priority one over the other.
"Person" means and includes an individual, a partnership, a corporation,
a trust, an unincorporated association, a joint venture or other entity or a
government or any agency or political subdivision thereof.
"Policy" means an insurance policy purchased by the Trust which
guarantees the payment of principal and interest on specified Florida Municipal
Bonds or Municipal Bonds during the period in which such Florida Municipal Bonds
or Municipal Bonds are owned by the Trust; provided, however, that, as long as
the AMPS are rated by Moody's and S&P, the Trust will not obtain any Policy
unless Moody's and S&P advise the Trust in writing that the purchase of such
Policy will not adversely affect their then-current rating on the AMPS.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of AMPS but that wishes to purchase
such shares, or that is a Beneficial Owner that wishes to purchase additional
AMPS.
"Potential Holder" means any Broker-Dealer or any such other Person as
may be permitted by the Trust, including any Existing Holder, who may be
interested in acquiring AMPS (or, in the case of an Existing Holder, additional
AMPS).
"Preferred Shares" means the preferred shares of beneficial interest, par
value $.10 per share, of the Trust, and includes AMPS and Other AMPS.
16
<PAGE> 17
"Premium Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions."
"Pricing Service" means J.J. Kenny or any pricing service designated by
the Board of Trustees of the Trust provided the Trust obtains written
assurance from S&P and Moody's that such designation will not impair the rating
then assigned by S&P and Moody's to the AMPS.
"Quarterly Valuation Date" means the twenty-fifth day of the last month
of each fiscal quarter of the Trust (or, if such day is not a Business Day, the
next succeeding Business Day) in each fiscal year of the Trust, commencing
, 1999.
"Receivables for Florida Municipal Bonds Sold" has the meaning set forth
under the definition of S&P Discount Factor.
"Receivables for Florida Municipal Bonds or Municipal Bonds Sold" has the
meaning set forth under the definition of Moody's Discount Factor.
"Reference Rate" means: (i) with respect to a Dividend Period or a Short
Term Dividend Period having 28 or fewer days, the higher of the applicable "AA"
Composite Commercial Paper Rate and the Taxable Equivalent of the Short-Term
Municipal Bond Rate, (ii) with respect to any Short Term Dividend Period having
more than 28 but fewer than 183 days, the applicable "AA" Composite Commercial
Paper Rate, (iii) with respect to any Short Term Dividend Period having 183 or
more but fewer than 364 days, the applicable U.S. Treasury Bill Rate and (iv)
with respect to any Long Term Dividend Period, the applicable U.S. Treasury Note
Rate.
"Request for Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of this Certificate of Designation.
"Response" has the meaning set forth in paragraph 2(c)(iii) of this
Certificate of Designation.
"Retroactive Taxable Allocation" has the meaning set forth in paragraph
2(e) of this Certificate of Designation.
"Right," with respect to each series of AMPS, has the meaning set forth
in paragraph 2(e) of this Certificate of Designation and, with respect to Other
AMPS, has the equivalent meaning.
17
<PAGE> 18
"S&P" means Standard & Poor's, a division of the McGraw-Hill Companies or
its successors.
"S&P Discount Factor" means, for purposes of determining the Discounted
Value of any Florida Municipal Bond which constitutes an S&P Eligible Asset, the
percentage determined by reference to (a)(i) the rating by S&P, Moody's or Fitch
on such Bond or (ii) in the event the Florida Municipal Bond is insured under a
Policy and the terms of the Policy permit the Trust, at its option, to obtain
other permanent insurance guaranteeing the timely payment of interest on such
Florida Municipal Bond and principal thereof to maturity, the S&P insurance
claims-paying ability rating of the issuer of the Policy or (iii) in the event
the Florida Municipal Bond is insured under an insurance policy which guarantees
the timely payment of interest on such Florida Municipal Bond and principal
thereof to maturity, the S&P insurance claims-paying ability rating of the
issuer of the insurance policy and (b) the S&P Exposure Period, in accordance
with the tables set forth below:
<TABLE>
<CAPTION>
For Florida Municipal Bonds:
- ----------------------------
Rating Category
-------------------------------------------------------------------------------
S&P Exposure Period AAA* AA* A* BBB*
- ------------------- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
45 Business Days.......................... 205% 210% 225% 265%
25 Business Days.......................... 185 190 205 245
10 Business Days.......................... 170 175 190 230
7 Business Days.......................... 165 170 185 225
3 Business Days.......................... 145 150 165 205
</TABLE>
- --------------
* S&P rating.
Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
Florida Municipal Bonds will be 115%, so long as such Florida Municipal Bonds
are rated A-1+ or SP-1+ by S&P and mature or have a demand feature exercisable
in 30 days or less, or 120% so long as such Florida Municipal Bonds are rated
A-1 or SP-1 by S&P and mature or have a demand feature exercisable in 30 days or
less, or 125% if such Florida Municipal Bonds are not rated by S&P but are rated
VMIG-1, P-1 or MIG-1 by Moody's or F-1 + by Fitch; provided, however, such
short-term Florida Municipal Bonds rated by Moody's or Fitch but not rated by
S&P having a demand feature exercisable in 30 days or less must be backed by a
letter of credit, liquidity facility or guarantee from a bank or other financial
institution having a short-term rating
18
<PAGE> 19
of at least A-1+ from S&P; and further provided that such short-term Florida
Municipal Bonds rated by Moody's or Fitch but not rated by S&P may comprise no
more than 50% of short-term Florida Municipal Bonds that qualify as S&P Eligible
Assets, (ii) the S&P Discount Factor for Receivables for Florida Municipal Bonds
Sold that are due in more than five Business Days from such Valuation Date will
be the S&P Discount Factor applicable to the Florida Municipal Bonds sold, and
(iii) no S&P Discount Factor will be applied to cash or to Receivables for
Florida Municipal Bonds Sold if such receivables are due within five Business
Days of such Valuation Date. "Receivables for Florida Municipal Bonds Sold," for
purposes of calculating S&P Eligible Assets as of any Valuation Date, means the
book value of receivables for Florida Municipal Bonds sold as of or prior to
such Valuation Date. The Trust may adopt S&P Discount Factors for Municipal
Bonds other than Florida Municipal Bonds provided that S&P advises the Trust in
writing that such action will not adversely affect its then current rating on
the AMPS. For purposes of the foregoing, Anticipation Notes rated SP-1 or, if
not rated by S&P, rated VMIG-1 by Moody's or F-1 + by Fitch, which do not mature
or have a demand feature exercisable in 30 days and which do not have a
long-term rating, shall be considered to be short-term Florida Municipal Bonds.
"S&P Eligible Asset" means cash, Receivables for Florida Municipal Bonds
Sold or a Florida Municipal Bond that (i) is interest bearing and pays interest
at least semi-annually; (ii) is payable with respect to principal and interest
in United States Dollars; (iii) is publicly rated BBB or higher by S&P or,
except in the case of Anticipation Notes that are grant anticipation notes or
bond anticipation notes which must be rated by S&P to be included in S&P
Eligible Assets, if not rated by S&P but rated by Moody's or Fitch, is rated at
least A by Moody's or Fitch (provided that such Moody's-rated or Fitch-rated
Florida Municipal Bonds will be included in S&P Eligible Assets only to the
extent the Market Value of such Florida Municipal Bonds does not exceed 50% of
the aggregate Market Value of the S&P Eligible Assets; and further provided
that, for purposes of determining the S&P Discount Factor applicable to any such
Moody's-rated or Fitch-rated Florida Municipal Bond, such Florida Municipal Bond
will be deemed to have an S&P rating which is one full rating category lower
than its Moody's rating or Fitch rating); (iv) is not subject to a covered call
or covered put option written by the Trust; (v) except for Inverse Floaters, is
not part of a private placement of Florida Municipal Bonds; and (vi) except for
Inverse Floaters, is part of an issue of Florida Municipal Bonds with an
original issue size of
19
<PAGE> 20
at least $10 million or, if of an issue with an original issue size below $10
million (but in no event below $5 million), is either (a) issued by an issuer
with a total of at least $25 million of securities outstanding or (b) rated at
least A by S&P with all such Florida Municipal Bonds not constituting more than
20% of the aggregate Market Value of S&P Eligible Assets. Notwithstanding the
foregoing:
(1) Florida Municipal Bonds of any one issuer or guarantor
(excluding bond insurers) will be considered S&P Eligible Assets only to
the extent the Market Value of such Florida Municipal Bonds does not
exceed 10% of the aggregate Market Value of the S&P Eligible Assets,
provided that 2% is added to the applicable S&P Discount Factor for every
1% by which the Market Value of such Florida Municipal Bonds exceeds 5%
of the aggregate Market Value of the S&P Eligible Assets;
(2) Florida Municipal Bonds of any one issue type category (as
described below) will be considered S&P Eligible Assets only to the
extent the Market Value of such Bonds does not exceed 25% of the
aggregate Market Value of S&P Eligible Assets, except that Florida
Municipal Bonds falling within the utility issue type category will be
broken down into three sub-categories (as described below) and such
Florida Municipal Bonds will be considered S&P Eligible Assets to the
extent the Market Value of such Bonds in each such sub-category does not
exceed 25% of the aggregate Market Value of S&P Eligible Assets, except
that Florida Municipal Bonds falling within the transportation issue type
category will be broken down into two sub-categories (as described below)
and such Florida Municipal Bonds will be considered S&P Eligible Assets
to the extent the Market Value of such Bonds in both sub-categories
combined (as described below) does not exceed 40% of the aggregate Market
Value of S&P Eligible Assets and except that Florida Municipal Bonds
falling within the general obligation issue type category will be
considered S&P Eligible Assets to the extent the Market Value of such
Bonds does not exceed 50% of the aggregate Market Value of S&P Eligible
Assets. For purposes of the issue type category requirement described
above, Florida Municipal Bonds will be classified within one of the
following categories: health care issues, housing issues, educational
facilities issues, student loan issues, transportation issues, industrial
development bond issues, utility issues, general obligation issues, lease
obligations, escrowed bonds and other issues not falling within
20
<PAGE> 21
one of the aforementioned categories. The general obligation issue type
category includes any issuer that is directly or indirectly guaranteed by
the State of Florida or its political subdivisions. Utility issuers are
included in the general obligation issue type category if the issuer is
directly or indirectly guaranteed by the State of Florida or its
political subdivisions. For purposes of the issue type category
requirement described above, Florida Municipal Bonds in the utility issue
type category will be classified within one of the three following
sub-categories: (i) electric, gas and combination issues (if the
combination issue includes an electric issue), (ii) water and sewer
utilities and combination issues (if the combination issue does not
include an electric issue), and (iii) irrigation, resource recovery,
solid waste and other utilities, provided that Florida Municipal Bonds
included in this sub-category (iii) must be rated by S&P in order to be
included in S&P Eligible Assets. For purposes of the issue type category
requirement described above, Florida Municipal Bonds in the
transportation issue type category will be classified within one of the
two following sub-categories: (i) streets and highways, toll roads,
bridges and tunnels, airports and multi-purpose port authorities
(multiple revenue streams generated by toll roads, airports, real estate,
bridges), (ii) mass transit, parking, seaports and others. Exposure to
transportation sub-category (i) in the preceding sentence is limited to
25% of the aggregate Market Value of S&P Eligible Assets, provided,
however, exposure to transportation sub-category (ii) in the preceding
sentence can exceed the 25% limit to the extent that exposure to
transportation sub-category (ii) is reduced, for a total exposure up to
and not exceeding 40% of the aggregate Market Value of S&P Eligible
Assets for the transportation issue type category; and
(3) Florida Municipal Bonds which are escrow bonds or defeased
bonds may compose up to 100% of the aggregate Market Value of S&P
Eligible Assets if such Bonds initially are assigned a rating by S&P in
accordance with S&P's legal defeasance criteria or rerated by S&P as
economic defeased escrow bonds and assigned an AAA rating. Florida
Municipal Bonds may be rated as escrow bonds by another nationally
recognized rating agency or rerated as an escrow bond and assigned the
equivalent of an S&P AAA rating, provided that such equivalent rated
Bonds are limited to 50% of the aggregate Market Value of S&P Eligible
Assets and are deemed to have an AA S&P rating for purposes of
determining the S&P Discount Factor applicable to such Florida
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Municipal Bonds. The limitations on Florida Municipal Bonds of any one
issuer in clause (1) above are not applicable to escrow bonds, however,
economically defeased bonds that are either initially rated or rerated by
S&P or another nationally recognized rating agency and assigned the same
rating level as the issuer of the Bonds will remain in its original issue
type category set forth in clause (2) above. Florida Municipal Bonds that
are legally defeased and secured by securities issued or guaranteed by
the United States Government are not required to meet the minimum
issuance size requirement set forth above.
The Trust may include Municipal Bonds other than Florida Municipal Bonds
as S&P Eligible Assets pursuant to guidelines and restrictions to be established
by S&P provided that S&P advises the Trust in writing that such action will not
adversely affect its then current rating on the AMPS.
"S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the AMPS Basic Maintenance Cure
Date, that the Trust has under this Certificate of Designation to cure any
failure to maintain, as of such Valuation Date, the Discounted Value for its
portfolio at least equal to the AMPS Basic Maintenance Amount (as described in
paragraph 7(a) of this Certificate of Designation).
"S&P Hedging Transactions" has the meaning set forth in paragraph 8(a) of
this Certificate of Designation.
"S&P Volatility Factor" means 277% or such other potential dividend rate
increase factor as S&P advises the Trust in writing is applicable.
"Securities Depository" means The Depository Trust Company or any
successor company or other entities elected by the Trust as securities
depository for the AMPS that agrees to follow the procedures required to be
followed by such securities depository in connection with the AMPS.
"Service" means the United States Internal Revenue Service.
"7-Day Dividend Period" means a Dividend Period consisting of seven days.
"Share Books" means the books maintained by the Auction Agent setting
forth at all times a current list, as determined by the Auction Agent, of
Existing Holders of the AMPS.
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"Share Register" means the register of Holders maintained on behalf of
the Trust by the Auction Agent in its capacity as transfer agent and registrar
for the AMPS.
"Short Term Dividend Period" means a Special Dividend Period consisting
of a specified number of days (other than seven), evenly divisible by seven and
not fewer than seven nor more than 364.
"Special Dividend Period" means a Dividend Period consisting of (i) a
specified number of days (other than seven), evenly divisible by seven and not
fewer than seven nor more than 364 or (ii) a specified period of one whole year
or more but not greater than five years (in each case subject to adjustment as
provided in paragraph 2(b)(i)).
"Specific Redemption Provisions" means, with respect to a Special
Dividend Period either, or any combination of, (i) a period (a "Non-Call
Period") determined by the Board of Trustees of the Trust, after consultation
with the Auction Agent and the Broker-Dealers, during which the AMPS subject to
such Dividend Period shall not be subject to redemption at the option of the
Trust and (ii) a period (a "Premium Call Period"), consisting of a number of
whole years and determined by the Board of Trustees of the Trust, after
consultation with the Auction Agent and the Broker-Dealers, during each year of
which the AMPS subject to such Dividend Period shall be redeemable at the
Trust's option at a price per share equal to $25,000 plus accumulated but unpaid
dividends plus a premium expressed as a percentage of $25,000, as determined by
the Board of Trustees of the Trust after consultation with the Auction Agent and
the Broker-Dealers.
"Subsequent Dividend Period," with respect to AMPS, has the meaning set
forth in paragraph 2(c)(i) of this Certificate of Designation and, with respect
to Other AMPS, has the equivalent meaning.
"Substitute Commercial Paper Dealers" means such Substitute Commercial
Paper Dealer or Dealers as the Trust may from time to time appoint or, in lieu
of any thereof, their respective affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating Agencies" mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by Merrill
Lynch, Pierce, Fenner & Smith Incorporated or its affiliates and successors,
after consultation with the Trust, to act as the substitute rating
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<PAGE> 24
agency or substitute rating agencies, as the case may be, to determine the
credit ratings of the AMPS.
"Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Kenny S&P 30-day High Grade Index (the "Kenny
Index") or any successor index, made available for the Business Day immediately
preceding such date but in any event not later than 8:30 A.M., New York City
time, on such date by Kenny Information Systems Inc. or any successor thereto,
based upon 30-day yield evaluations at par of bonds the interest on which is
excludable for regular Federal income tax purposes under the Code of "high
grade" component issuers selected by Kenny Information Systems Inc. or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds but shall
exclude any bonds the interest on which constitutes an item of tax preference
under Section 57(a)(5) of the Code, or successor provisions, for purposes of the
"alternative minimum tax," divided by (B) 1.00 minus the Marginal Tax Rate
(expressed as a decimal); provided, however, that if the Kenny Index is not made
so available by 8:30 A.M., New York City time, on such date by Kenny Information
Systems Inc. or any successor, the Taxable Equivalent of the Short-Term
Municipal Bond Rate shall mean the quotient of (A) the per annum rate expressed
on an interest equivalent basis equal to the most recent Kenny Index so made
available for any preceding Business Day, divided by (B) 1.00 minus the Marginal
Tax Rate (expressed as a decimal). The Trust may not utilize a successor index
to the Kenny Index unless Moody's and S&P provide the Trust with written
confirmation that the use of such successor index will not adversely affect the
then-current respective Moody's and S&P ratings of the AMPS.
"Treasury Bonds" has the meaning set forth in paragraph 8(a) of this
Certificate of Designation.
"U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent
of the rate on the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as such rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the
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Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on any
date means the Interest Equivalent of the yield as calculated by reference to
the arithmetic average of the bid price quotations of the actively traded
Treasury Bill with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by bid price quotations as of any time on
the Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the Auction
Agent.
"U.S. Treasury Note Rate" on any date means (i) the yield as calculated
by reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related Dividend
Period, as determined by the bid price quotations as of any time on the Business
Day immediately preceding such date, obtained from at least three recognized
primary U.S. Government securities dealers selected by the Auction Agent.
"Valuation Date" means, for purposes of determining whether the Trust is
maintaining the AMPS Basic Maintenance Amount, each Business Day commencing with
the Date of Original Issue.
"Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Trust, the amount of cash or securities paid to or
received from a broker (subsequent to the Initial Margin payment) from time to
time as the price of such futures contract fluctuates.
(b) The foregoing definitions of Accountant's Confirmation, AMPS Basic
Maintenance Amount, AMPS Basic Maintenance Cure Date, AMPS Basic Maintenance
Report, Deposit Securities, Discounted Value, Independent Accountant, Initial
Margin, Inverse Floaters, Market Value, Maximum Potential Additional Dividend
Liability, Moody's Discount Factor, Moody's Eligible Asset, Moody's Exposure
Period, Moody's Hedging Transactions, Moody's Volatility Factor, S&P Discount
Factor, S&P Eligible Asset, S&P Exposure Period, S&P Hedging
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Transactions, S&P Volatility Factor, Valuation Date and Variation Margin have
been determined by the Board of Trustees of the Trust in order to obtain a "aaa"
rating from Moody's and a AAA rating from S&P on the AMPS on their Date of
Original Issue; and the Board of Trustees of the Trust shall have the authority,
without shareholder approval, to amend, alter or repeal from time to time the
foregoing definitions and the restrictions and guidelines set forth thereunder
if Moody's and S&P or any Substitute Rating Agency advises the Trust in writing
that such amendment, alteration or repeal will not adversely affect their then
current ratings on the AMPS.
2. Dividends. (a) The Holders shall be entitled to receive, when, as and
if declared by the Board of Trustees of the Trust, out of funds legally
available therefor, cumulative dividends each consisting of (i) cash at the
Applicable Rate, (ii) a Right to receive cash as set forth in paragraph 2(e)
below, and (iii) any additional amounts as set forth in paragraph 2(f) below,
and no more, payable on the respective dates set forth below. Dividends on the
AMPS so declared and payable shall be paid (i) in preference to and in priority
over any dividends declared and payable on the Common Shares, and (ii) to the
extent permitted under the Code and to the extent available, out of net
tax-exempt income earned on the Trust's investments. To the extent permitted
under the Code, dividends on AMPS will be designated as exempt-interest
dividends. For the purposes of this section, the term "net tax-exempt income"
shall exclude capital gains of the Trust.
(b) (i) Cash dividends on AMPS shall accumulate from the Date of Original
Issue and shall be payable, when, as and if declared by the Board of Trustees,
out of funds legally available therefor, commencing on the Initial Dividend
Payment Date with respect to each series of AMPS. Following the Initial Dividend
Payment Date for each series of AMPS, dividends on each series of AMPS will be
payable, at the option of the Trust, either (i) with respect to any 7-Day
Dividend Period and any Short Term Dividend Period of 35 or fewer days, on the
day next succeeding the last day thereof or (ii) with respect to any Short Term
Dividend Period of more than 35 days and with respect to any Long Term Dividend
Period, monthly on the first Business Day of each calendar month during such
Short Term Dividend Period or Long Term Dividend Period and on the day next
succeeding the last day thereof (each such date referred to in clause (i) or
(ii) being herein referred to as a "Normal Dividend Payment Date"), except that
if such Normal Dividend Payment Date is not a Business Day, then the Dividend
Payment Date shall be the first Business Day next succeeding such Normal
Dividend Payment Date. Although
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any particular Dividend Payment Date may not occur on the originally scheduled
date because of the exceptions discussed above, the next succeeding Dividend
Payment Date, subject to such exceptions, will occur on the next following
originally scheduled date. If for any reason a Dividend Payment Date cannot be
fixed as described above, then the Board of Trustees shall fix the Dividend
Payment Date. The Board of Trustees by resolution prior to authorization of a
dividend by the Board of Trustees may change a Dividend Payment Date if such
change does not adversely affect the contract rights of the Holders of AMPS set
forth in the Declaration. The Initial Dividend Period, 7-Day Dividend Periods
and Special Dividend Periods are hereinafter sometimes referred to as Dividend
Periods. Each dividend payment date determined as provided above is hereinafter
referred to as a "Dividend Payment Date."
(ii) Each dividend shall be paid to the Holders as they appear in the
Share Register as of 12:00 noon, New York City time, on the Business Day
preceding the Dividend Payment Date. Dividends in arrears for any past Dividend
Period may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to the Holders as they appear on the Share Register on a
date, not exceeding 15 days prior to the payment date therefor, as may be fixed
by the Board of Trustees of the Trust.
(c) (i) During the period from and including the Date of Original Issue
to but excluding the Initial Dividend Payment Date for each series of AMPS (the
"Initial Dividend Period"), the Applicable Rate shall be the Initial Dividend
Rate. Commencing on the Initial Dividend Payment Date for each series of AMPS,
the Applicable Rate for each subsequent dividend period (hereinafter referred to
as a "Subsequent Dividend Period"), which Subsequent Dividend Period shall
commence on and include a Dividend Payment Date and shall end on and include the
calendar day prior to the next Dividend Payment Date (or last Dividend Payment
Date in a Dividend Period if there is more than one Dividend Payment Date),
shall be equal to the rate per annum that results from implementation of the
Auction Procedures.
The Applicable Rate for each Dividend Period commencing during a
Non-Payment Period shall be equal to the Non-Payment Period Rate; and each
Dividend Period, commencing after the first day of, and during, a Non-Payment
Period shall be a 7-Day Dividend Period in the case of each series of AMPS.
Except in the case of the willful failure of the Trust to pay a dividend on a
Dividend Payment Date or to redeem any AMPS on the date set for such
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redemption, any amount of any dividend due on any Dividend Payment Date (if,
prior to the close of business on the second Business Day preceding such
Dividend Payment Date, the Trust has declared such dividend payable on such
Dividend Payment Date to the Holders of such AMPS as of 12:00 noon, New York
City time, on the Business Day preceding such Dividend Payment Date) or
redemption price with respect to any AMPS not paid to such Holders when due may
be paid to such Holders in the same form of funds by 12:00 noon, New York City
time, on any of the first three Business Days after such Dividend Payment Date
or due date, as the case may be, provided that, such amount is accompanied by a
late charge calculated for such period of non-payment at the Non-Payment Period
Rate applied to the amount of such non-payment based on the actual number of
days comprising such period divided by 365. In the case of a willful failure of
the Trust to pay a dividend on a Dividend Payment Date or to redeem any AMPS on
the date set for such redemption, the preceding sentence shall not apply and the
Applicable Rate for the Dividend Period commencing during the Non-Payment Period
resulting from such failure shall be the Non-Payment Period Rate. For the
purposes of the foregoing, payment to a person in same-day funds on any Business
Day at any time shall be considered equivalent to payment to such person in New
York Clearing House (next-day) funds at the same time on the preceding Business
Day, and any payment made after 12:00 noon, New York City time, on any Business
Day shall be considered to have been made instead in the same form of funds and
to the same person before 12:00 noon, New York City time, on the next Business
Day.
(ii) The amount of cash dividends per share of any series of AMPS
payable (if declared) on the Initial Dividend Payment Date, each 7-Day Dividend
Period and each Dividend Payment Date of each Short Term Dividend Period shall
be computed by multiplying the Applicable Rate for such Dividend Period by a
fraction, the numerator of which will be the number of days in such Dividend
Period or part thereof that such share was outstanding and the denominator of
which will be 365, multiplying the amount so obtained by $25,000, and rounding
the amount so obtained to the nearest cent. During any Long Term Dividend
Period, the amount of cash dividends per share of AMPS payable (if declared) on
any Dividend Payment Date shall be computed by multiplying the Applicable Rate
for such Dividend Period by a fraction, the numerator of which will be such
number of days in such part of such Dividend Period that such share was
outstanding and for which dividends are payable on such Dividend Payment Date
and
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the denominator of which will be 360, multiplying the amount so obtained by
$25,000, and rounding the amount so obtained to the nearest cent.
(iii) With respect to each Dividend Period that is a Special Dividend
Period, the Trust may, at its sole option and to the extent permitted by law, by
telephonic and written notice (a "Request for Special Dividend Period") to the
Auction Agent and to each Broker-Dealer, request that the next succeeding
Dividend Period for a series of AMPS be a number of days (other than seven),
evenly divisible by seven, and not fewer than seven nor more than 364 in the
case of a Short Term Dividend Period or one whole year or more but not greater
than five years in the case of a Long Term Dividend Period, specified in such
notice, provided that the Trust may not give a Request for Special Dividend
Period of greater than 28 days (and any such request shall be null and void)
unless, for any Auction occurring after the initial Auction, Sufficient Clearing
Bids were made in the last occurring Auction and unless full cumulative
dividends, any amounts due with respect to redemptions, and any Additional
Dividends payable prior to such date have been paid in full. Such Request for
Special Dividend Period, in the case of a Short Term Dividend Period, shall be
given on or prior to the second Business Day but not more than seven Business
Days prior to an Auction Date for a series of AMPS and, in the case of a Long
Term Dividend Period, shall be given on or prior to the second Business Day but
not more than 28 days prior to an Auction Date for the AMPS. Upon receiving such
Request for Special Dividend Period, the Broker-Dealer(s) shall jointly
determine whether, given the factors set forth below, it is advisable that the
Trust issue a Notice of Special Dividend Period for the series of AMPS as
contemplated by such Request for Special Dividend Period and the Optional
Redemption Price of the AMPS during such Special Dividend Period and the
Specific Redemption Provisions and shall give the Trust and the Auction Agent
written notice (a "Response") of such determination by no later than the second
Business Day prior to such Auction Date. In making such determination the
Broker-Dealer(s) will consider (1) existing short-term and long-term market
rates and indices of such short-term and long-term rates, (2) existing market
supply and demand for short-term and long-term securities, (3) existing yield
curves for short-term and long-term securities comparable to the AMPS, (4)
industry and financial conditions which may affect the AMPS, (5) the investment
objective of the Trust, and (6) the Dividend Periods and dividend rates at which
current and potential beneficial holders of the AMPS would remain or become
beneficial holders. If the Broker-Dealer(s) shall not give the Trust and the
Auction Agent a
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Response by such second Business Day or if the Response states that given the
factors set forth above it is not advisable that the Trust give a Notice of
Special Dividend Period for the series of AMPS, the Trust may not give a Notice
of Special Dividend Period in respect of such Request for Special Dividend
Period. In the event the Response indicates that it is advisable that the Trust
give a Notice of Special Dividend Period for the series of AMPS, the Trust may
by no later than the second Business Day prior to such Auction Date give a
notice (a "Notice of Special Dividend Period") to the Auction Agent, the
Securities Depository and each Broker-Dealer which notice will specify (i) the
duration of the Special Dividend Period, (ii) the Optional Redemption Price as
specified in the related Response and (iii) the Specific Redemption Provisions,
if any, as specified in the related Response. The Trust also shall provide a
copy of such Notice of Special Dividend Period to Moody's and S&P. The Trust
shall not give a Notice of Special Dividend Period and, if the Trust has given a
Notice of Special Dividend Period, the Trust is required to give telephonic and
written notice of its revocation (a "Notice of Revocation") to the Auction
Agent, each Broker-Dealer, and the Securities Depository on or prior to the
Business Day prior to the relevant Auction Date if (x) either the 1940 Act AMPS
Asset Coverage is not satisfied or the Trust shall fail to maintain S&P Eligible
Assets and Moody's Eligible Assets each with an aggregate Discounted Value at
least equal to the AMPS Basic Maintenance Amount, in each case on each of the
two Valuation Dates immediately preceding the Business Day prior to the relevant
Auction Date on an actual basis and on a pro forma basis giving effect to the
proposed Special Dividend Period (using as a pro forma dividend rate with
respect to such Special Dividend Period the dividend rate which the
Broker-Dealers shall advise the Trust is an approximately equal rate for
securities similar to the AMPS with an equal dividend period), provided that, in
calculating the aggregate Discounted Value of Moody's Eligible Assets for this
purpose, the Moody's Exposure Period shall be deemed to be one week longer, (y)
sufficient funds for the payment of dividends payable on the immediately
succeeding Dividend Payment Date have not been irrevocably deposited with the
Auction Agent by the close of business on the third Business Day preceding the
related Auction Date or (z) the Broker-Dealer(s) jointly advise the Trust that
after consideration of the factors listed above they have concluded that it is
advisable to give a Notice of Revocation. The Trust also shall provide a copy of
such Notice of Revocation to Moody's and S&P. If the Trust is prohibited from
giving a Notice of Special Dividend Period as a result of any of the factors
enumerated in clause (x), (y)
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or (z) above or if the Trust gives a Notice of Revocation with respect to a
Notice of Special Dividend Period for any series of AMPS, the next succeeding
Dividend Period will be a 7-Day Dividend Period in the case of Series A AMPS and
Series B AMPS. In addition, in the event Sufficient Clearing Bids are not made
in the applicable Auction or such Auction is not held for any reason, such next
succeeding Dividend Period will be a 7-Day Dividend Period (in the case of
Series A AMPS and Series B AMPS) and the Trust may not again give a Notice of
Special Dividend Period for the AMPS (and any such attempted notice shall be
null and void) until Sufficient Clearing Bids have been made in an Auction with
respect to a 7-Day Dividend Period (in the case of Series A AMPS and Series B
AMPS).
(d) (i) Holders shall not be entitled to any dividends, whether payable
in cash, property or shares, in excess of full cumulative dividends and
applicable late charges, as herein provided, on the AMPS (except for Additional
Dividends as provided in paragraph 2(e) hereof and additional payments as
provided in paragraph 2(f) hereof). Except for the late charge payable pursuant
to paragraph 2(c)(i) hereof, no interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment on the AMPS that may be in
arrears.
(ii) For so long as any share of AMPS is Outstanding, the Trust shall not
declare, pay or set apart for payment any dividend or other distribution (other
than a dividend or distribution paid in shares of, or options, warrants or
rights to subscribe for or purchase, Common Shares or other shares of beneficial
interest, if any, ranking junior to the AMPS as to dividends or upon
liquidation) in respect of the Common Shares or any other shares of the Trust
ranking junior to or on a parity with the AMPS as to dividends or upon
liquidation, or call for redemption, redeem, purchase or otherwise acquire for
consideration any shares of the Common Shares or any other such junior shares of
beneficial interest (except by conversion into or exchange for shares of the
Trust ranking junior to the AMPS as to dividends and upon liquidation) or any
other such Parity Shares (except by conversion into or exchange for shares of
the Trust ranking junior to or on a parity with the AMPS as to dividends and
upon liquidation), unless (A) immediately after such transaction, the Trust
shall have S&P Eligible Assets and Moody's Eligible Assets each with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount and the Trust shall maintain the 1940 Act AMPS Asset Coverage, (B) full
cumulative dividends on AMPS and shares of Other AMPS due on or prior to the
date of the transaction have been declared and paid or shall have been declared
and sufficient funds for the payment thereof
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deposited with the Auction Agent, (C) any Additional Dividend required to be
paid under paragraph 2(e) below on or before the date of such declaration or
payment has been paid and (D) the Trust has redeemed the full number of AMPS
required to be redeemed by any provision for mandatory redemption contained
herein.
(e) Each dividend shall consist of (i) cash at the Applicable Rate, (ii)
an uncertificated right (a "Right") to receive an Additional Dividend (as
defined below), and (iii) any additional amounts as set forth in paragraph 2(f)
below. Each Right shall thereafter be independent of the AMPS on which the
dividend was paid. The Trust shall cause to be maintained a record of each Right
received by the respective Holders. A Right may not be transferred other than by
operation of law. If the Trust retroactively allocates any net capital gains or
other income subject to regular Federal income taxes to AMPS without having
given advance notice thereof to the Auction Agent as described in paragraph 2(f)
hereof solely by reason of the fact that such allocation is made as a result of
the redemption of all or a portion of the outstanding AMPS or the liquidation of
the Trust (the amount of such allocation referred to herein as a "Retroactive
Taxable Allocation"), the Trust will, within 90 days (and generally within 60
days) after the end of the Trust's fiscal year for which a Retroactive Taxable
Allocation is made, provide notice thereof to the Auction Agent and to each
holder of a Right applicable to such AMPS (initially Cede & Co. as nominee of
The Depository Trust Company) during such fiscal year at such holder's address
as the same appears or last appeared on the Share Books of the Trust. The Trust
will, within 30 days after such notice is given to the Auction Agent, pay to the
Auction Agent (who will then distribute to such holders of Rights), out of funds
legally available therefor, an amount equal to the aggregate Additional Dividend
with respect to all Retroactive Taxable Allocations made to such holders during
the fiscal year in question.
An "Additional Dividend" means payment to a present or former holder of
AMPS of an amount which, when taken together with the aggregate amount of
Retroactive Taxable Allocations made to such holder with respect to the fiscal
year in question, would cause such holder's dividends in dollars (after Federal
and Florida income tax consequences) from the aggregate of both the Retroactive
Taxable Allocations and the Additional Dividend to be equal to the dollar amount
of the dividends which would have been received by such holder if the amount of
the aggregate Retroactive Taxable Allocations would have been excludable from
the gross income of such holder. Such Additional Dividend shall be calculated
(i) without consideration
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being given to the time value of money; (ii) assuming that no holder of AMPS is
subject to the Federal alternative minimum tax with respect to dividends
received from the Trust; and (iii) assuming that each Retroactive Taxable
Allocation would be taxable in the hands of each holder of AMPS at the greater
of: (x) the maximum marginal regular Federal individual income tax rate
applicable to ordinary income or capital gains depending on the taxable
character of the distribution (including any surtax); or (y) the maximum
combined marginal regular Federal and Florida corporate income tax rate
applicable to ordinary income or capital gains depending on the taxable
character of the distribution (taking into account in both (x) and (y) the
Federal income tax deductibility of state taxes paid or incurred but not any
phase out of, or provision limiting, personal exemptions, itemized deductions,
or the benefit of lower tax brackets and assuming the taxability of Federally
tax-exempt dividends for corporations for Florida income tax purposes).
(f) Except as provided below, whenever the Trust intends to include any
net capital gains or other income subject to regular Federal income taxes in any
dividend on AMPS, the Trust will notify the Auction Agent of the amount to be so
included at least five Business Days prior to the Auction Date on which the
Applicable Rate for such dividend is to be established. The Trust may also
include such income in a dividend on shares of a series of AMPS without giving
advance notice thereof if it increases the dividend by an additional amount
calculated as if such income was a Retroactive Taxable Allocation and the
additional amount was an Additional Dividend, provided that the Trust will
notify the Auction Agent of the additional amounts to be included in such
dividend at least five Business Days prior to the applicable Dividend Payment
Date.
(g) No fractional AMPS shall be issued.
3. Liquidation Rights. Upon any liquidation, dissolution or winding up of
the Trust, whether voluntary or involuntary, the Holders shall be entitled to
receive, out of the assets of the Trust available for distribution to
shareholders, before any distribution or payment is made upon any Common Shares
or any other shares of beneficial interest ranking junior in right of payment
upon liquidation to the AMPS, the sum of $25,000 per share plus accumulated but
unpaid dividends (whether or not earned or declared) thereon to the date of
distribution, and after such payment the Holders will be entitled to no other
payments other than Additional Dividends as
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provided in paragraph 2(e) hereof. If upon any liquidation, dissolution or
winding up of the Trust, the amounts payable with respect to the AMPS and any
other Outstanding class or series of Preferred Shares of the Trust ranking on a
parity with the AMPS as to payment upon liquidation are not paid in full, the
Holders and the holders of such other class or series will share ratably in any
such distribution of assets in proportion to the respective preferential amounts
to which they are entitled. After payment of the full amount of the liquidating
distribution to which they are entitled, the Holders will not be entitled to any
further participation in any distribution of assets by the Trust except for any
Additional Dividends. A consolidation, merger or statutory share exchange of the
Trust with or into any other corporation or entity or a sale, whether for cash,
shares of stock, securities or properties, of all or substantially all or any
part of the assets of the Trust shall not be deemed or construed to be a
liquidation, dissolution or winding up of the Trust.
4. Redemption. (a) Shares of AMPS shall be redeemable by the Trust as
provided below:
(i) To the extent permitted under the 1940 Act and
Massachusetts law, upon giving a Notice of Redemption, the Trust at its
option may redeem AMPS, in whole or in part, out of funds legally
available therefor, at the Optional Redemption Price per share, on any
Dividend Payment Date; provided that no share of AMPS may be redeemed at
the option of the Trust during (A) the Initial Dividend Period with
respect to a series of shares or (B) a Non-Call Period to which such
share is subject. In addition, holders of AMPS which are redeemed shall
be entitled to receive Additional Dividends to the extent provided
herein. The Trust may not give a Notice of Redemption relating to an
optional redemption as described in this paragraph 4(a)(i) unless, at the
time of giving such Notice of Redemption, the Trust has available Deposit
Securities with maturity or tender dates not later than the day preceding
the applicable redemption date and having a value not less than the
amount due to Holders by reason of the redemption of their AMPS on such
redemption date.
(ii) The Trust shall redeem, out of funds legally available
therefor, at the Mandatory Redemption Price per share, AMPS to the extent
permitted under the 1940 Act, on a date fixed by the Board of Trustees,
if the Trust fails to maintain S&P Eligible
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<PAGE> 35
Assets and Moody's Eligible Assets each with an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount as
provided in paragraph 7(a) or to satisfy the 1940 Act AMPS Asset Coverage
as provided in paragraph 6 and such failure is not cured on or before the
AMPS Basic Maintenance Cure Date or the 1940 Act Cure Date (herein
collectively referred to as a "Cure Date"), as the case may be. In
addition, holders of AMPS so redeemed shall be entitled to receive
Additional Dividends to the extent provided herein. The number of AMPS to
be redeemed shall be equal to the lesser of (i) the minimum number of
AMPS the redemption of which, if deemed to have occurred immediately
prior to the opening of business on the Cure Date, together with all
shares of other Preferred Shares subject to redemption or retirement,
would result in the Trust having S&P Eligible Assets and Moody's Eligible
Assets each with an aggregate Discounted Value equal to or greater than
the AMPS Basic Maintenance Amount or satisfaction of the 1940 Act AMPS
Asset Coverage, as the case may be, on such Cure Date (provided that, if
there is no such minimum number of AMPS and of other Preferred Shares the
redemption of which would have such result, all AMPS and other Preferred
Shares then Outstanding shall be redeemed), and (ii) the maximum number
of AMPS, together with all other Preferred Shares subject to redemption
or retirement, that can be redeemed out of funds expected to be legally
available therefor on such redemption date. In determining the number of
AMPS required to be redeemed in accordance with the foregoing, the Trust
shall allocate the number required to be redeemed which would result in
the Trust having S&P Eligible Assets and Moody's Eligible Assets each
with an aggregate Discounted Value equal to or greater than the AMPS
Basic Maintenance Amount or satisfaction of the 1940 Act AMPS Asset
Coverage, as the case may be, pro rata among AMPS of all series, Other
AMPS and other Preferred Shares subject to redemption pursuant to
provisions similar to those contained in this paragraph 4(a)(ii);
provided that, AMPS which may not be redeemed at the option of the Trust
due to the designation of a Non-Call Period applicable to such shares (A)
will be subject to mandatory redemption only to the extent that other
shares are not available to satisfy the number of shares required to be
redeemed and (B) will be selected for redemption in an ascending order of
outstanding number of days in the Non-Call Period (with shares with the
lowest number of days to be redeemed first) and by lot in the event of
shares having
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an equal number of days in such Non-Call Period. The Trust shall effect
such redemption on a Business Day which is not later than 35 days after
such Cure Date, except that if the Trust does not have funds legally
available for the redemption of all of the required number of AMPS and
other Preferred Shares which are subject to mandatory redemption or the
Trust otherwise is unable to effect such redemption on or prior to 35
days after such Cure Date, the Trust shall redeem those AMPS which it is
unable to redeem on the earliest practicable date on which it is able to
effect such redemption out of funds legally available therefor.
(b) Notwithstanding any other provision of this paragraph 4, no AMPS may
be redeemed pursuant to paragraph 4(a)(i) of this Certificate of Designation (i)
unless all dividends in arrears on all remaining outstanding Parity Shares shall
have been or are being contemporaneously paid or declared and set apart for
payment and (ii) if redemption thereof would result in the Trust's failure to
maintain Moody's Eligible Assets or S&P Eligible Assets with an aggregate
Discounted Value equal to or greater than the AMPS Basic Maintenance Amount. In
the event that less than all the outstanding shares of a series of AMPS are to
be redeemed and there is more than one Holder, the shares of that series of AMPS
to be redeemed shall be selected by lot or such other method as the Trust shall
deem fair and equitable.
(c) Whenever AMPS are to be redeemed, the Trust, not less than 17 nor
more than 60 days prior to the date fixed for redemption, shall mail a notice
("Notice of Redemption") by first-class mail, postage prepaid, to each Holder of
AMPS to be redeemed and to the Auction Agent. The Trust shall cause the Notice
of Redemption to also be published in the eastern and national editions of The
Wall Street Journal. The Notice of Redemption shall set forth (i) the redemption
date, (ii) the amount of the redemption price, (iii) the aggregate number of
AMPS of such series to be redeemed, (iv) the place or places where AMPS of such
series are to be surrendered for payment of the redemption price, (v) a
statement that dividends on the shares to be redeemed shall cease to accumulate
on such redemption date (except that holders may be entitled to Additional
Dividends) and (vi) the provision of this Certificate of Designation pursuant to
which such shares are being redeemed. No defect in the Notice of Redemption or
in the mailing or publication thereof shall affect the validity of the
redemption proceedings, except as required by applicable law.
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If the Notice of Redemption shall have been given as aforesaid and,
concurrently or thereafter, the Trust shall have deposited in trust with the
Auction Agent, or segregated in an account at the Trust's custodian bank for the
benefit of the Auction Agent, Deposit Securities (with a right of substitution)
having an aggregate Discounted Value (utilizing in the case of S&P an S&P
Exposure Period of 22 Business Days) equal to the redemption payment for the
AMPS as to which such Notice of Redemption has been given with irrevocable
instructions and authority to pay the redemption price to the Holders of such
shares, then upon the date of such deposit or, if no such deposit is made, then
upon such date fixed for redemption (unless the Trust shall default in making
the redemption payment), all rights of the Holders of such shares as
shareholders of the Trust by reason of the ownership of such shares will cease
and terminate (except their right to receive the redemption price in respect
thereof and any Additional Dividends, but without interest), and such shares
shall no longer be deemed outstanding. The Trust shall be entitled to receive,
from time to time, from the Auction Agent the interest, if any, on such Deposit
Securities deposited with it and the Holders of any shares so redeemed shall
have no claim to any of such interest. In case the Holder of any shares so
called for redemption shall not claim the redemption payment for his shares
within one year after the date of redemption, the Auction Agent shall, upon
demand, pay over to the Trust such amount remaining on deposit and the Auction
Agent shall thereupon be relieved of all responsibility to the Holder of such
shares called for redemption and such Holder thereafter shall look only to the
Trust for the redemption payment.
5. Voting Rights. (a) General. Except as otherwise provided in the
Declaration or By-Laws, each Holder of AMPS shall be entitled to one vote for
each share held on each matter submitted to a vote of shareholders of the Trust,
and the holders of outstanding Preferred Shares, including AMPS, and of Common
Shares vote together as a single class; provided that, at any meeting of the
shareholders of the Trust held for the election of trustees, the holders of
outstanding Preferred Shares, including AMPS, shall be entitled, as a class, to
the exclusion of the holders of all other securities and classes of shares of
beneficial interest of the Trust, to elect two trustees of the Trust. Subject to
paragraph 5(b) hereof, the holders of outstanding shares of beneficial interest
of the Trust, including the holders of outstanding Preferred Shares, including
AMPS, voting as a single class, shall elect the balance of the trustees.
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(b) Right to Elect Majority of Board of Trustees. During any period in
which any one or more of the conditions described below shall exist (such period
being referred to herein as a "Voting Period"), the number of trustees
constituting the Board of Trustees shall be automatically increased by the
smallest number that, when added to the two trustees elected exclusively by the
holders of Preferred Shares, would constitute a majority of the Board of
Trustees as so increased by such smallest number; and the holders of Preferred
Shares shall be entitled, voting separately as one class (to the exclusion of
the holders of all other securities and classes of shares of beneficial interest
of the Trust), to elect such smallest number of additional trustees, together
with the two trustees that such holders are in any event entitled to elect. A
Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not earned
or declared, and whether or not funds are then legally available in an
amount sufficient therefor) on the outstanding AMPS equal to at least two
full years' dividends shall be due and unpaid and sufficient cash or
specified securities shall not have been deposited with the Auction Agent
for the payment of such accumulated dividends; or
(ii) if at any time holders of any other Preferred Shares are
entitled to elect a majority of the trustees of the Trust under the 1940
Act.
Upon the termination of a Voting Period, the voting rights described in
this paragraph 5(b) shall cease, subject always, however, to the reverting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this paragraph 5(b).
(c) Right to Vote with Respect to Certain Other Matters. So long as any
AMPS are outstanding, the Trust shall not, without the affirmative vote of the
holders of a majority of the Preferred Shares Outstanding at the time, voting
separately as one class: (i) authorize, create or issue any class or series of
shares ranking prior to the AMPS or any other series of Preferred Shares with
respect to payment of dividends or the distribution of assets on liquidation, or
(ii) amend, alter or repeal the provisions of the Declaration, whether by
merger, consolidation or otherwise, so as to adversely affect any of the
contract rights expressly set forth in the Declaration of holders of AMPS or any
other Preferred Shares. To the extent permitted under the 1940 Act, in the event
shares of more than one series of AMPS are outstanding, the Trust shall not
approve any of the actions set forth in clause (i) or (ii) which adversely
affects the
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contract rights expressly set forth in the Declaration of a Holder of shares of
a series of AMPS differently than those of a Holder of shares of any other
series of AMPS without the affirmative vote of the holders of at least a
majority of the AMPS of each series adversely affected and outstanding at such
time (each such adversely affected series voting separately as a class). The
Trust shall notify Moody's and S&P ten Business Days prior to any such vote
described in clause (i) or (ii). Unless a higher percentage is provided for
under the Declaration, the affirmative vote of the holders of a majority of the
outstanding Preferred Shares, including AMPS, voting together as a single class,
will be required to approve any plan of reorganization (including bankruptcy
proceedings) adversely affecting such shares or any action requiring a vote of
security holders under Section 13(a) of the 1940 Act. The class vote of holders
of Preferred Shares, including AMPS, described above will in each case be in
addition to a separate vote of the requisite percentage of shares of beneficial
interest and Preferred Shares, including AMPS, voting together as a single class
necessary to authorize the action in question.
(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of the
holders of Preferred Shares to elect additional trustees as described in
paragraph 5(b) above, the Trust shall call a special meeting of such holders and
instruct the Auction Agent to mail a notice of such special meeting to such
holders, such meeting to be held not less than 10 nor more than 20 days after
the date of mailing of such notice. If the Trust fails to send such notice to
the Auction Agent or if the Trust does not call such a special meeting, it may
be called by any such holder on like notice. The record date for determining the
holders entitled to notice of and to vote at such special meeting shall be the
close of business on the fifth Business Day preceding the day on which such
notice is mailed. At any such special meeting and at each meeting held during a
Voting Period, such Holders, voting together as a class (to the exclusion of the
holders of all other securities and classes of shares of beneficial interest of
the Trust), shall be entitled to elect the number of trustees prescribed in
paragraph 5(b) above. At any such meeting or adjournment thereof in the absence
of a quorum, a majority of such holders present in person or by proxy shall have
the power to adjourn the meeting without notice, other than by an announcement
at the meeting, to a date not more than 120 days after the original record date.
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(ii) For purposes of determining any rights of the Holders to vote on
any matter or the number of shares required to constitute a quorum, whether such
right is created by this Certificate of Designation, by the other provisions of
the Declaration, by statute or otherwise, a share of AMPS which is not
Outstanding shall not be counted.
(iii) The terms of office of all persons who are trustees of the Trust
at the time of a special meeting of Holders and holders of other Preferred
Shares to elect trustees shall continue, notwithstanding the election at such
meeting by the Holders and such other holders of the number of trustees that
they are entitled to elect, and the persons so elected by the Holders and such
other holders, together with the two incumbent trustees elected by the Holders
and such other holders of Preferred Shares and the remaining incumbent trustees
elected by the holders of the Common Shares and Preferred Shares, shall
constitute the duly elected trustees of the Trust.
(iv) Simultaneously with the expiration of a Voting Period, the terms
of office of the additional trustees elected by the Holders and holders of other
Preferred Shares pursuant to paragraph 5(b) above shall terminate, the remaining
trustees shall constitute the trustees of the Trust and the voting rights of the
Holders and such other holders to elect additional trustees pursuant to
paragraph 5(b) above shall cease, subject to the provisions of the last sentence
of paragraph 5(b).
(e) Exclusive Remedy. Unless otherwise required by law, the Holders of
AMPS shall not have any rights or preferences other than those specifically set
forth herein. The Holders of AMPS shall have no preemptive rights or rights to
cumulative voting. In the event that the Trust fails to pay any dividends on the
AMPS, the exclusive remedy of the Holders shall be the right to vote for
trustees pursuant to the provisions of this paragraph 5.
(f) Notification to S&P and Moody's. In the event a vote of Holders of
AMPS is required pursuant to the provisions of Section 13(a) of the 1940 Act,
the Trust shall, not later than ten Business Days prior to the date on which
such vote is to be taken, notify S&P and Moody's that such vote is to be taken
and the nature of the action with respect to which such vote is to be taken and,
not later than ten Business Days after the date on which such vote is taken,
notify S&P and Moody's of the result of such vote.
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6. 1940 Act AMPS Asset Coverage. The Trust shall maintain, as of the last
Business Day of each month in which any share of AMPS is outstanding, the 1940
Act AMPS Asset Coverage.
7. AMPS Basic Maintenance Amount. (a) The Trust shall maintain, on each
Valuation Date, and shall verify to its satisfaction that it is maintaining on
such Valuation Date, (i) S&P Eligible Assets having an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount and (ii)
Moody's Eligible Assets having an aggregate Discounted Value equal to or greater
than the AMPS Basic Maintenance Amount. Upon any failure to maintain the
required Discounted Value, the Trust will use its best efforts to alter the
composition of its portfolio to reattain a Discounted Value at least equal to
the AMPS Basic Maintenance Amount on or prior to the AMPS Basic Maintenance Cure
Date.
(b) On or before 5:00 p.m., New York City time, on the third Business Day
after a Valuation Date on which the Trust fails to satisfy the AMPS Basic
Maintenance Amount, the Trust shall complete and deliver to the Auction Agent,
and Moody's and S&P, as the case may be, a complete AMPS Basic Maintenance
Report as of the date of such failure, which will be deemed to have been
delivered to the Auction Agent if the Auction Agent receives a copy or telecopy,
telex or other electronic transcription thereof and on the same day the Trust
mails to the Auction Agent for delivery on the next Business Day the complete
AMPS Basic Maintenance Report. The Trust will deliver an AMPS Basic Maintenance
Report to the Auction Agent and Moody's and S&P, as the case may be, on or
before 5:00 p.m., New York City time, on the third Business Day after a
Valuation Date on which the Trust cures its failure to maintain Moody's Eligible
Assets or S&P Eligible Assets, as the case may be, with an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount or on which the
Trust fails to maintain Moody's Eligible Assets or S&P Eligible Assets, as the
case may be, with an aggregate Discounted Value which exceeds the AMPS Basic
Maintenance Amount by 5% or more. The Trust will also deliver an AMPS Basic
Maintenance Report to the Auction Agent, Moody's and S&P as of each Quarterly
Valuation Date on or before the third Business Day after such date.
Additionally, on or before 5:00 p.m., New York City time, on the third Business
Day after the first day of a Special Dividend Period, the Trust will deliver an
AMPS Basic Maintenance Report to S&P and the Auction Agent. The Trust shall also
provide Moody's and S&P with an AMPS Basic Maintenance Report when specifically
requested by either Moody's or S&P. A
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failure by the Trust to deliver an AMPS Basic Maintenance Report under this
paragraph 7(b) shall be deemed to be delivery of an AMPS Basic Maintenance
Report indicating the Discounted Value for S&P Eligible Assets and Moody's
Eligible Assets of the Trust is less than the AMPS Basic Maintenance Amount, as
of the relevant Valuation Date.
(c) Within ten Business Days after the date of delivery of an AMPS Basic
Maintenance Report in accordance with paragraph 7(b) above relating to a
Quarterly Valuation Date, the Independent Accountant will confirm in writing to
the Auction Agent, S&P and Moody's (i) the mathematical accuracy of the
calculations reflected in such Report (and in any other AMPS Basic Maintenance
Report, randomly selected by the Independent Accountant, that was delivered by
the Trust during the quarter ending on such Quarterly Valuation Date), (ii)
that, in such Report (and in such randomly selected Report), the Trust correctly
determined the assets of the Trust which constitute S&P Eligible Assets or
Moody's Eligible Assets, as the case may be, at such Quarterly Valuation Date in
accordance with this Certificate of Designation, (iii) that, in such Report (and
in such randomly selected Report), the Trust determined whether the Trust had,
at such Quarterly Valuation Date (and at the Valuation Date addressed in such
randomly selected Report) in accordance with this Certificate of Designation,
S&P Eligible Assets of an aggregate Discounted Value at least equal to the AMPS
Basic Maintenance Amount and Moody's Eligible Assets of an aggregate Discounted
Value at least equal to the AMPS Basic Maintenance Amount, (iv) with respect to
the S&P ratings on Florida Municipal Bonds or Municipal Bonds, the issuer name,
issue size and coupon rate listed in such Report, that the Independent
Accountant has requested that S&P verify such information and the Independent
Accountant shall provide a listing in its letter of any differences, (v) with
respect to the Moody's ratings on Florida Municipal Bonds or Municipal Bonds,
the issuer name, issue size and coupon rate listed in such Report, that such
information has been verified by Moody's (in the event such information is not
verified by Moody's, the Independent Accountant will inquire of Moody's what
such information is, and provide a listing in its letter of any differences),
(vi) with respect to the bid or mean price (or such alternative permissible
factor used in calculating the Market Value) provided by the custodian of the
Trust's assets to the Trust for purposes of valuing securities in the Trust's
portfolio, the Independent Accountant has traced the price used in such Report
to the bid or mean price listed in such Report as provided to the Trust and
verified that such information agrees (in the event such information does not
agree, the Independent
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Accountant will provide a listing in its letter of such differences) and (vii)
with respect to such confirmation to Moody's, that the Trust has satisfied the
requirements of paragraph 8(b) of this Certificate of Designation (such
confirmation is herein called the "Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery to the Auction
Agent, S&P and Moody's of an AMPS Basic Maintenance Report in accordance with
paragraph 7(b) above relating to any Valuation Date on which the Trust failed to
maintain S&P Eligible Assets with an aggregate Discounted Value and Moody's
Eligible Assets with an aggregate Discounted Value equal to or greater than the
AMPS Basic Maintenance Amount, and relating to the AMPS Basic Maintenance Cure
Date with respect to such failure, the Independent Accountant will provide to
the Auction Agent, S&P and Moody's an Accountant's Confirmation as to such AMPS
Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to subparagraph
(c) or (d) of this paragraph 7 shows that an error was made in the AMPS Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation as required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all S&P Eligible Assets or Moody's
Eligible Assets, as the case may be, of the Trust was determined by the
Independent Accountant, the calculation or determination made by such
Independent Accountant shall be final and conclusive and shall be binding on the
Trust, and the Trust shall accordingly amend and deliver the AMPS Basic
Maintenance Report to the Auction Agent, S&P and Moody's promptly following
receipt by the Trust of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business Day
after the Date of Original Issue of the AMPS, the Trust will complete and
deliver to S&P and Moody's an AMPS Basic Maintenance Report as of the close of
business on such Date of Original Issue. Within five Business Days of such Date
of Original Issue, the Independent Accountant will confirm in writing to S&P and
Moody's (i) the mathematical accuracy of the calculations reflected in such
Report and (ii) that the aggregate Discounted Value of S&P Eligible Assets and
the aggregate Discounted Value of Moody's Eligible Assets reflected thereon
equals or exceeds the AMPS Basic Maintenance Amount reflected thereon. Also, on
or before 5:00 p.m., New York City time, on the first Business Day after Common
Shares are repurchased by the Trust, the
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Trust will complete and deliver to S&P and Moody's an AMPS Basic Maintenance
Report as of the close of business on such date that Common Shares are
repurchased.
(g) For so long as AMPS are rated by Moody's, in managing the Trust's
portfolio, the Adviser will not alter the composition of the Trust's portfolio
if, in the reasonable belief of the Adviser, the effect of any such alteration
would be to cause the Trust to have Moody's Eligible Assets with an aggregate
Discounted Value, as of the immediately preceding Valuation Date, less than the
AMPS Basic Maintenance Amount as of such Valuation Date; provided, however, that
in the event that, as of the immediately preceding Valuation Date, the aggregate
Discounted Value of Moody's Eligible Assets exceeded the AMPS Basic Maintenance
Amount by five percent or less, the Adviser will not alter the composition of
the Trust's portfolio in a manner reasonably expected to reduce the aggregate
Discounted Value of Moody's Eligible Assets unless the Trust shall have
confirmed that, after giving effect to such alteration, the aggregate Discounted
Value of Moody's Eligible Assets would exceed the AMPS Basic Maintenance Amount.
8. Certain Other Restrictions and Requirements. (a) For so long as any
AMPS are rated by S&P, the Trust will not purchase or sell futures contracts,
write, purchase or sell options on futures contracts or write put options
(except covered put options) or call options (except covered call options) on
portfolio securities unless it receives written confirmation from S&P that
engaging in such transactions will not impair the ratings then assigned to the
AMPS by S&P, except that the Trust may purchase or sell futures contracts based
on the Bond Buyer Municipal Bond Index (the "Municipal Index") or United States
Treasury Bonds or Notes ("Treasury Bonds") and write, purchase or sell put and
call options on such contracts (collectively, "S&P Hedging Transactions"),
subject to the following limitations:
(i) the Trust will not engage in any S&P Hedging Transaction
based on the Municipal Index (other than transactions which terminate a
futures contract or option held by the Trust by the Trust's taking an
opposite position thereto ("Closing Transactions")), which would cause
the Trust at the time of such transaction to own or have sold the least
of (A) more than 1,000 outstanding futures contracts based on the
Municipal Index, (B) outstanding futures contracts based on the Municipal
Index exceeding in number 25% of the quotient of the Market Value of the
Trust's total assets
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divided by $1,000 or (C) outstanding futures contracts based on the
Municipal Index exceeding in number 10% of the average number of daily
traded futures contracts based on the Municipal Index in the 30 days
preceding the time of effecting such transaction as reported by The Wall
Street Journal;
(ii) the Trust will not engage in any S&P Hedging Transaction
based on Treasury Bonds (other than Closing Transactions) which would
cause the Trust at the time of such transaction to own or have sold the
lesser of (A) outstanding futures contracts based on Treasury Bonds
exceeding in number 50% of the quotient of the Market Value of the
Trust's total assets divided by $100,000 ($200,000 in the case of the
two-year United States Treasury Note) or (B) outstanding futures
contracts based on Treasury Bonds exceeding in number 10% of the average
number of daily traded futures contracts based on Treasury Bonds in the
30 days preceding the time of effecting such transaction as reported by
The Wall Street Journal;
(iii) the Trust will engage in Closing Transactions to close out
any outstanding futures contract which the Trust owns or has sold or any
outstanding option thereon owned by the Trust in the event (A) the Trust
does not have S&P Eligible Assets with an aggregate Discounted Value
equal to or greater than the AMPS Basic Maintenance Amount on two
consecutive Valuation Dates and (B) the Trust is required to pay
Variation Margin on the second such Valuation Date;
(iv) the Trust will engage in a Closing Transaction to close out
any outstanding futures contract or option thereon in the month prior to
the delivery month under the terms of such futures contract or option
thereon unless the Trust holds the securities deliverable under such
terms; and
(v) when the Trust writes a futures contract or option thereon,
it will either maintain an amount of cash, cash equivalents or high grade
(rated A or better by S&P), fixed-income securities in a segregated
account with the Trust's custodian, so that the amount so segregated plus
the amount of Initial Margin and Variation Margin held in the account of
or on behalf of the Trust's broker with respect to such futures contract
or option equals the Market Value of the futures contract or option, or,
in the event the Trust
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writes a futures contract or option thereon which requires delivery of an
underlying security, it shall hold such underlying security in its
portfolio.
For purposes of determining whether the Trust has S&P Eligible Assets
with a Discounted Value that equals or exceeds the AMPS Basic Maintenance
Amount, the Discounted Value of cash or securities held for the payment of
Initial Margin or Variation Margin shall be zero and the aggregate Discounted
Value of S&P Eligible Assets shall be reduced by an amount equal to (i) 30% of
the aggregate settlement value, as marked to market, of any outstanding futures
contracts based on the Municipal Index which are owned by the Trust plus (ii)
25% of the aggregate settlement value, as marked to market, of any outstanding
futures contracts based on Treasury Bonds which contracts are owned by the
Trust.
(b) For so long as any AMPS are rated by Moody's, the Trust will not buy
or sell futures contracts, write, purchase or sell call options on futures
contracts or purchase put options on futures contracts or write call options
(except covered call options) on portfolio securities unless it receives written
confirmation from Moody's that engaging in such transactions would not impair
the ratings then assigned to the AMPS by Moody's, except that the Trust may
purchase or sell exchange-traded futures contracts based on the Municipal Index
or Treasury Bonds and purchase, write or sell exchange-traded put options on
such futures contracts and purchase, write or sell exchange-traded call options
on such futures contracts (collectively, "Moody's Hedging Transactions"),
subject to the following limitations:
(i) the Trust will not engage in any Moody's Hedging
Transaction based on the Municipal Index (other than Closing
Transactions) which would cause the Trust at the time of such transaction
to own or have sold (A) outstanding futures contracts based on the
Municipal Index exceeding in number 10% of the average number of daily
traded futures contracts based on the Municipal Index in the 30 days
preceding the time of effecting such transaction as reported by The Wall
Street Journal or (B) outstanding futures contracts based on the
Municipal Index having a Market Value exceeding 50% of the Market Value
of all Municipal Bonds constituting Moody's Eligible Assets owned by the
Trust (other than Moody's Eligible Assets already subject to a Moody's
Hedging Transaction);
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<PAGE> 47
(ii) the Trust will not engage in any Moody's Hedging
Transaction based on Treasury Bonds (other than Closing Transactions)
which would cause the Trust at the time of such transaction to own or
have sold (A) outstanding futures contracts based on Treasury Bonds
having an aggregate Market Value exceeding 20% of the aggregate Market
Value of Moody's Eligible Assets owned by the Trust and rated Aa by
Moody's (or, if not rated by Moody's but rated by S&P, rated AAA by S&P)
or (B) outstanding futures contracts based on Treasury Bonds having an
aggregate Market Value exceeding 40% of the aggregate Market Value of all
Municipal Bonds constituting Moody's Eligible Assets owned by the Trust
(other than Moody's Eligible Assets already subject to a Moody's Hedging
Transaction) and rated Baa or A by Moody's (or, if not rated by Moody's
but rated by S&P, rated A or AA by S&P) (for purposes of the foregoing
clauses (i) and (ii), the Trust shall be deemed to own the number of
futures contracts that underlie any outstanding options written by the
Trust);
(iii) the Trust will engage in Closing Transactions to close out
any outstanding futures contract based on the Municipal Index if the
amount of open interest in the Municipal Index as reported by The Wall
Street Journal is less than 5,000;
(iv) the Trust will engage in a Closing Transaction to close out
any outstanding futures contract by no later than the fifth Business Day
of the month in which such contract expires and will engage in a Closing
Transaction to close out any outstanding option on a futures contract by
no later than the first Business Day of the month in which such option
expires;
(v) the Trust will engage in Moody's Hedging Transactions only
with respect to futures contracts or options thereon having the next
settlement date or the settlement date immediately thereafter;
(vi) the Trust will not engage in options and futures
transactions for leveraging or speculative purposes and will not write
any call options or sell any futures contracts for the purpose of hedging
the anticipated purchase of an asset prior to completion of such
purchase; and
(vii) the Trust will not enter into an option or futures
transaction unless, after giving effect thereto, the Trust would continue
to have Moody's Eligible Assets with an
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<PAGE> 48
aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount.
For purposes of determining whether the Trust has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the Discounted Value of Moody's Eligible Assets which the
Trust is obligated to deliver or receive pursuant to an outstanding futures
contract or option shall be as follows: (i) assets subject to call options
written by the Trust which are either exchange-traded and "readily reversible"
or which expire within 49 days after the date as of which such valuation is made
shall be valued at the lesser of (a) Discounted Value and (b) the exercise price
of the call option written by the Trust; (ii) assets subject to call options
written by the Trust not meeting the requirements of clause (i) of this sentence
shall have no value; (iii) assets subject to put options written by the Trust
shall be valued at the lesser of (A) the exercise price and (B) the Discounted
Value of the subject security; (iv) futures contracts shall be valued at the
lesser of (A) settlement price and (B) the Discounted Value of the subject
security, provided that, if a contract matures within 49 days after the date as
of which such valuation is made, where the Trust is the seller the contract may
be valued at the settlement price and where the Trust is the buyer the contract
may be valued at the Discounted Value of the subject securities; and (v) where
delivery may be made to the Trust with any security of a class of securities,
the Trust shall assume that it will take delivery of the security with the
lowest Discounted Value.
For purposes of determining whether the Trust has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the following amounts shall be subtracted from the aggregate
Discounted Value of the Moody's Eligible Assets held by the Trust: (i) 10% of
the exercise price of a written call option; (ii) the exercise price of any
written put option; (iii) where the Trust is the seller under a futures
contract, 10% of the settlement price of the futures contract; (iv) where the
Trust is the purchaser under a futures contract, the settlement price of assets
purchased under such futures contract; (v) the settlement price of the
underlying futures contract if the Trust writes put options on a futures
contract; and (vi) 105% of the Market Value of the underlying futures contracts
if the Trust writes call options on a futures contract and does not own the
underlying contract.
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<PAGE> 49
(c) For so long as any AMPS are rated by Moody's, the Trust will not
enter into any contract to purchase securities for a fixed price at a future
date beyond customary settlement time (other than such contracts that constitute
Moody's Hedging Transactions that are permitted under paragraph 8(b) of this
Certificate of Designation), except that the Trust may enter into such contracts
to purchase newly-issued securities on the date such securities are issued
("Forward Commitments"), subject to the following limitations:
(i) the Trust will maintain in a segregated account with its
custodian cash, cash equivalents or short-term, fixed-income securities
rated P-1, MIG-1 or VMIG-1 by Moody's and maturing prior to the date of
the Forward Commitment with a Market Value that equals or exceeds the
amount of the Trust's obligations under any Forward Commitments to which
it is from time to time a party or long-term fixed income securities with
a Discounted Value that equals or exceeds the amount of the Trust's
obligations under any Forward Commitment to which it is from time to time
a party; and
(ii) the Trust will not enter into a Forward Commitment unless,
after giving effect thereto, the Trust would continue to have Moody's
Eligible Assets with an aggregate Discounted Value equal to or greater
than the AMPS Basic Maintenance Amount.
For purposes of determining whether the Trust has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the Discounted Value of all Forward Commitments to which the
Trust is a party and of all securities deliverable to the Trust pursuant to such
Forward Commitments shall be zero.
(d) For so long as AMPS are rated by S&P or Moody's, the Trust will not,
unless it has received written confirmation from S&P and/or Moody's, as the case
may be, that such action would not impair the ratings then assigned to AMPS by
S&P and/or Moody's, as the case may be, (i) borrow money except for the purpose
of clearing transactions in portfolio securities (which borrowings shall under
any circumstances be limited to the lesser of $10 million and an amount equal to
5% of the Market Value of the Trust's assets at the time of such borrowings and
which borrowings shall be repaid within 60 days and not be extended or renewed
and shall not cause the aggregate Discounted Value of Moody's Eligible Assets
and S&P Eligible Assets to be less than the AMPS Basic Maintenance Amount), (ii)
engage in short sales of securities, (iii)
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<PAGE> 50
lend any securities, (iv) issue any class or series of shares ranking prior to
or on a parity with the AMPS with respect to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up of the Trust,
(v) reissue any AMPS previously purchased or redeemed by the Trust, (vi) merge
or consolidate into or with any other corporation or entity, (vii) change the
Pricing Service or (viii) engage in reverse repurchase agreements.
(e) For so long as AMPS are rated by Moody's, the Trust agrees to provide
Moody's with the following, unless the Trust has received written confirmation
from Moody's that the provision of such information is no longer required and
that the current rating then assigned to the AMPS by Moody's would not be
impaired: a notification letter at least 30 days prior to any material change in
the Declaration; a copy of the AMPS Basic Maintenance Report prepared by the
Trust in accordance with this Certificate of Designation; and a notice upon the
occurrence of any of the following events: (i) any failure by the Trust to
declare or pay any dividends on the AMPS or successfully remarket the AMPS; (ii)
any mandatory or optional redemption of the AMPS effected by the Trust; (iii)
any assumption of control of the Board of Trustees of the Trust by the holders
of the AMPS; (iv) a general unavailability of dealer quotes on the assets of the
Trust; (v) any material auditor discrepancies on valuations; (vi) the dividend
rate on the AMPS equals or exceeds 95% of the Aaa Composite Commercial Paper
Rate; (vii) the occurrence of any Special Dividend Period; (viii) any change in
the Maximum Applicable Rate or the Reference Rate; (ix) the acquisition by any
person of beneficial ownership of more than 5% of the Trust's voting shares of
beneficial interest (inclusive of Common Shares and Preferred Shares); (x) the
occurrence of any change in Internal Revenue Service rules with respect to the
payment of Additional Dividends; (xi) any change in the Pricing Service employed
by the Trust; (xii) any change in the Investment Adviser; (xiii) any increase of
greater than 40% to the maximum marginal Federal income tax rate applicable to
individuals or corporations; and (xiv) the maximum marginal Federal income tax
rate applicable to individuals or corporations is increased to a rate in excess
of 50%.
9. Notice. All notices or communications, unless otherwise specified in
the By-Laws of the Trust or this Certificate of Designation, shall be
sufficiently given if in writing and delivered in person or mailed by
first-class mail, postage prepaid. Notice shall be deemed given on the earlier
of the date received or the date seven days after which such notice is mailed.
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<PAGE> 51
10. Auction Procedures.
(a) Certain definitions. As used in this paragraph 10, the following
terms shall have the following meanings, unless the context otherwise requires:
(i) "AMPS" means the AMPS being auctioned pursuant to this
paragraph 10.
(ii) "Auction Date" means the first Business Day preceding the
first day of a Dividend Period.
(iii) "Available AMPS" has the meaning specified in paragraph
10(d)(i) below.
(iv) "Bid" has the meaning specified in paragraph 10(b)(i)
below.
(v) "Bidder" has the meaning specified in paragraph 10(b)(i)
below.
(vi) "Hold Order" has the meaning specified in paragraph 10(b)(i)
below.
(vii) "Maximum Applicable Rate" for any Dividend Period will be
the Applicable Percentage of the Reference Rate. The Applicable
Percentage will be determined based on (i) the lower of the credit rating
or ratings assigned on such date to such shares by Moody's and S&P (or if
Moody's or S&P or both shall not make such rating available, the
equivalent of either or both of such ratings by a Substitute Rating
Agency or two Substitute Rating Agencies or, in the event that only one
such rating shall be available, such rating) and (ii) whether the Trust
has provided notification to the Auction Agent prior to the Auction
establishing the Applicable Rate for any dividend pursuant to paragraph
2(f) hereof that net capital gains or other taxable income will be
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<PAGE> 52
included in such dividend on AMPS as follows:
<TABLE>
<CAPTION>
Applicable Applicable
Percentage of Percentage of
Credit Ratings Reference Reference
- ------------------------------------------- Rate - Rate -
Moody's S&P No Notification Notification
- ---------------------- ------------------ --------------- -------------
<S> <C> <C> <C>
"aa3" or higher AA- or higher 110% 150%
"a3" to "a1" A- to A+ 125% 160%
"baa3" to "baa1" BBB- to BBB+ 150% 250%
Below "baa3" Below BBB- 200% 275%
</TABLE>
The Trust shall take all reasonable action necessary to enable S&P and
Moody's to provide a rating for each series of the AMPS. If either S&P or
Moody's shall not make such a rating available, or neither S&P nor Moody's shall
make such a rating available, Merrill Lynch, Pierce, Fenner & Smith Incorporated
or its affiliates and successors, after consultation with the Trust, shall
select a nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations to act as a Substitute Rating Agency
or Substitute Rating Agencies, as the case may be.
(viii) "Order" has the meaning specified in paragraph 10(b)(i)
below.
(ix) "Sell Order" has the meaning specified in paragraph
10(b)(i) below.
(x) "Submission Deadline" means 1:00 P.M., New York City time,
on any Auction Date or such other time on any Auction Date as may be
specified by the Auction Agent from time to time as the time by which
each Broker-Dealer must submit to the Auction Agent in writing all Orders
obtained by it for the Auction to be conducted on such Auction Date.
(xi) "Submitted Bid" has the meaning specified in paragraph
10(d)(i) below.
(xii) "Submitted Hold Order" has the meaning specified in
paragraph 10(d)(i) below.
(xiii) "Submitted Order" has the meaning specified in paragraph
10(d)(i) below.
(xiv) "Submitted Sell Order" has the meaning specified in
paragraph 10(d)(i) below.
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<PAGE> 53
(xv) "Sufficient Clearing Bids" has the meaning specified in
paragraph 10(d)(i) below.
(xvi) "Winning Bid Rate" has the meaning specified in paragraph
10(d)(i) below.
(b) Orders by Beneficial Owners, Potential Beneficial Owners, Existing
Holders and Potential Holders.
(i) Unless otherwise permitted by the Trust, Beneficial Owners
and Potential Beneficial Owners may only participate in Auctions through
their Broker-Dealers. Broker-Dealers will submit the Orders of their
respective customers who are Beneficial Owners and Potential Beneficial
Owners to the Auction Agent, designating themselves as Existing Holders
in respect of shares subject to Orders submitted or deemed submitted to
them by Beneficial Owners and as Potential Holders in respect of shares
subject to Orders submitted to them by Potential Beneficial Owners. A
Broker-Dealer may also hold AMPS in its own account as a Beneficial
Owner. A Broker-Dealer may thus submit Orders to the Auction Agent as a
Beneficial Owner or a Potential Beneficial Owner and therefore
participate in an Auction as an Existing Holder or Potential Holder on
behalf of both itself and its customers. On or prior to the Submission
Deadline on each Auction Date:
(A) each Beneficial Owner may submit to its Broker-Dealer
information as to:
(1) the number of Outstanding shares, if any, of AMPS held
by such Beneficial Owner which such Beneficial Owner desires to
continue to hold without regard to the Applicable Rate for the
next succeeding Dividend Period;
(2) the number of Outstanding shares, if any, of AMPS held
by such Beneficial Owner which such Beneficial Owner desires to
continue to hold, provided that the Applicable Rate for the next
succeeding Dividend Period shall not be less than the rate per
annum specified by such Beneficial Owner; and/or
(3) the number of Outstanding shares, if any, of AMPS held
by such Beneficial Owner which such Beneficial Owner offers to
sell without regard to the Applicable Rate for the next succeeding
Dividend Period; and
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<PAGE> 54
(B) each Broker-Dealer, using a list of Potential Beneficial
Owners that shall be maintained in good faith for the purpose of
conducting a competitive Auction, shall contact Potential Beneficial
Owners, including Persons that are not Beneficial Owners, on such list to
determine the number of Outstanding shares, if any, of AMPS which each
such Potential Beneficial Owner offers to purchase, provided that the
Applicable Rate for the next succeeding Dividend Period shall not be less
than the rate per annum specified by such Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, of information
referred to in clause (A) or (B) of this paragraph 10(b)(i) is hereinafter
referred to as an "Order" and each Beneficial Owner and each Potential
Beneficial Owner placing an Order, including a Broker-Dealer acting in such
capacity for its own account, is hereinafter referred to as a "Bidder"; an Order
containing the information referred to in clause (A)(1) of this paragraph
10(b)(i) is hereinafter referred to as a "Hold Order"; an Order containing the
information referred to in clause (A)(2) or (B) of this paragraph 10(b)(i) is
hereinafter referred to as a "Bid"; and an Order containing the information
referred to in clause (A)(3) of this paragraph 10(b)(i) is hereinafter referred
to as a "Sell Order." Inasmuch as a Broker-Dealer participates in an Auction as
an Existing Holder or a Potential Holder only to represent the interests of a
Beneficial Owner or Potential Beneficial Owner, whether it be its customers or
itself, all discussion herein relating to the consequences of an Auction for
Existing Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented.
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of Outstanding AMPS specified in such Bid
if the Applicable Rate determined on such Auction Date shall be
less than the rate per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding AMPS to
be determined as set forth in paragraph 10(e)(i)(D) if the
Applicable Rate determined on such Auction Date shall be equal to
the rate per annum specified therein; or
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<PAGE> 55
(3) a lesser number of Outstanding AMPS to be determined
as set forth in paragraph 10(e)(ii)(C) if such specified rate per
annum shall be higher than the Maximum Applicable Rate and
Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of Outstanding AMPS specified in such Sell
Order; or
(2) such number or a lesser number of Outstanding AMPS to
be determined as set forth in paragraph 10(e)(ii)(C) if Sufficient
Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable
offer to purchase:
(1) the number of Outstanding AMPS specified in such Bid
if the Applicable Rate determined on such Auction Date shall be
higher than the rate per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding AMPS to
be determined as set forth in paragraph 10(e)(i)(E) if the
Applicable Rate determined on such Auction Date shall be equal to
the rate per annum specified therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent.
(i) Each Broker-Dealer shall submit in writing or through the Auction
Agent's Auction Processing System to the Auction Agent prior to the Submission
Deadline on each Auction Date all Orders obtained by such Broker-Dealer,
designating itself (unless otherwise permitted by the Trust) as an Existing
Holder in respect of shares subject to Orders submitted or deemed submitted to
it by Beneficial Owners and as a Potential Holder in respect of shares subject
to Orders submitted to it by Potential Beneficial Owners, and specifying with
respect to each Order:
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<PAGE> 56
(A) the name of the Bidder placing such Order (which shall be
the Broker-Dealer unless otherwise permitted by the Trust);
(B) the aggregate number of Outstanding AMPS that are the
subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of AMPS
subject to any Hold Order placed by such Existing Holder;
(2) the number of Outstanding shares, if any, of AMPS
subject to any Bid placed by such Existing Holder and the rate per
annum specified in such Bid; and
(3) the number of Outstanding shares, if any, of AMPS
subject to any Sell Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate
per annum specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more
than three figures to the right of the decimal point, the Auction Agent
shall round such rate up to the next highest one-thousandth (.001) of 1%.
(iii) If an Order or Orders covering all of the Outstanding AMPS
held by an Existing Holder are not submitted to the Auction Agent prior
to the Submission Deadline, the Auction Agent shall deem a Hold Order (in
the case of an Auction relating to a Dividend Period which is not a
Special Dividend Period of 28 days or more) and a Sell Order (in the case
of an Auction relating to a Special Dividend Period of 28 days or more)
to have been submitted on behalf of such Existing Holder covering the
number of Outstanding AMPS held by such Existing Holder and not subject
to Orders submitted to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder
covering in the aggregate more than the number of Outstanding AMPS held
by such Existing Holder are submitted to the Auction Agent, such Order
shall be considered valid as follows and in the following order of
priority:
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<PAGE> 57
(A) any Hold Order submitted on behalf of such Existing Holder
shall be considered valid up to and including the number of Outstanding
AMPS held by such Existing Holder; provided that if more than one Hold
Order is submitted on behalf of such Existing Holder and the number of
AMPS subject to such Hold Orders exceeds the number of Outstanding AMPS
held by such Existing Holder, the number of AMPS subject to each of such
Hold Orders shall be reduced pro rata so that such Hold Orders, in the
aggregate, will cover exactly the number of Outstanding AMPS held by such
Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall
be considered valid, in the ascending order of their respective rates per
annum if more than one Bid is submitted on behalf of such Existing
Holder, up to and including the excess of the number of Outstanding AMPS
held by such Existing Holder over the number of AMPS subject to any Hold
Order referred to in paragraph 10(c)(iv)(A) above (and if more than one
Bid submitted on behalf of such Existing Holder specifies the same rate
per annum and together they cover more than the remaining number of
shares that can be the subject of valid Bids after application of
paragraph 10(c)(iv)(A) above and of the foregoing portion of this
paragraph 10(c)(iv)(B) to any Bid or Bids specifying a lower rate or
rates per annum, the number of shares subject to each of such Bids shall
be reduced pro rata so that such Bids, in the aggregate, cover exactly
such remaining number of shares); and the number of shares, if any,
subject to Bids not valid under this paragraph 10(c)(iv)(B) shall be
treated as the subject of a Bid by a Potential Holder; and
(C) any Sell Order shall be considered valid up to and
including the excess of the number of Outstanding AMPS held by such
Existing Holder over the number of AMPS subject to Hold Orders referred
to in paragraph 10(c)(iv)(A) and Bids referred to in paragraph
10(c)(iv)(B); provided that if more than one Sell Order is submitted on
behalf of any Existing Holder and the number of AMPS subject to such Sell
Orders is greater than such excess, the number of AMPS subject to each of
such Sell Orders shall be reduced pro rata so that such Sell Orders, in
the aggregate, cover exactly the number of AMPS equal to such excess.
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<PAGE> 58
(v) If more than one Bid is submitted on behalf of any
Potential Holder, each Bid submitted shall be a separate Bid with the
rate per annum and number of AMPS therein specified.
(vi) Any Order submitted by a Beneficial Owner as a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the
Auction Agent, prior to the Submission Deadline on any Auction Date shall
be irrevocable.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.
(i) Not earlier than the Submission Deadline on each Auction
Date, the Auction Agent shall assemble all Orders submitted or deemed
submitted to it by the Broker-Dealers (each such Order as submitted or
deemed submitted by a Broker-Dealer being hereinafter referred to
individually as a "Submitted Hold Order," a "Submitted Bid" or a
"Submitted Sell Order," as the case may be, or as a "Submitted Order")
and shall determine:
(A) the excess of the total number of Outstanding AMPS over the
number of Outstanding AMPS that are the subject of Submitted Hold Orders
(such excess being hereinafter referred to as the "Available AMPS");
(B) from the Submitted Orders whether the number of Outstanding
AMPS that are the subject of Submitted Bids by Potential Holders
specifying one or more rates per annum equal to or lower than the Maximum
Applicable Rate exceeds or is equal to the sum of:
(1) the number of Outstanding AMPS that are the subject of
Submitted Bids by Existing Holders specifying one or more rates
per annum higher than the Maximum Applicable Rate, and
(2) the number of Outstanding AMPS that are subject to
Submitted Sell Orders (if such excess or such equality exists
(other than because the number of Outstanding AMPS in clause (1)
above and this clause (2) are each zero because all of the
Outstanding AMPS are the subject of Submitted Hold Orders), such
Submitted Bids by Potential Holders being hereinafter referred to
collectively as "Sufficient Clearing Bids"); and
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<PAGE> 59
(C) if Sufficient Clearing Bids exist, the lowest rate per
annum specified in the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders specifying
the Winning Bid Rate and all other Submitted Bids from Existing
Holders specifying lower rates per annum were rejected, thus
entitling such Existing Holders to continue to hold the AMPS that
are the subject of such Submitted Bids, and
(2) each Submitted Bid from Potential Holders specifying
the Winning Bid Rate and all other Submitted Bids from Potential
Holders specifying lower rates per annum were accepted, thus
entitling the Potential Holders to purchase the AMPS that are the
subject of such Submitted Bids, would result in the number of
shares subject to all Submitted Bids specifying the Winning Bid
Rate or a lower rate per annum being at least equal to the
Available AMPS.
(ii) Promptly after the Auction Agent has made the
determinations pursuant to paragraph 10(d)(i), the Auction Agent shall
advise the Trust of the Maximum Applicable Rate and, based on such
determinations, the Applicable Rate for the next succeeding Dividend
Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate
for the next succeeding Dividend Period shall be equal to the Winning Bid
Rate;
(B) if Sufficient Clearing Bids do not exist (other than
because all of the Outstanding AMPS are the subject of Submitted Hold
Orders), that the Applicable Rate for the next succeeding Dividend Period
shall be equal to the Maximum Applicable Rate; or
(C) if all of the Outstanding AMPS are the subject of Submitted
Hold Orders, that the Dividend Period next succeeding the Auction shall
automatically be the same length as the immediately preceding Dividend
Period and the Applicable Rate for the next succeeding Dividend Period
shall be equal to 40% of the Reference Rate (or 60% of such rate if the
Trust has provided notification to the Auction Agent prior to the Auction
establishing the Applicable Rate for any dividend pursuant to paragraph
2(f) hereof that
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<PAGE> 60
net capital gains or other taxable income will be included in such
dividend on AMPS) on the date of the Auction.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell Orders
and Allocation of Shares. Based on the determinations made pursuant to paragraph
10(d)(i), the Submitted Bids and Submitted Sell Orders shall be accepted or
rejected and the Auction Agent shall take such other action as set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of paragraph 10(e)(iii) and paragraph 10(e)(iv), Submitted
Bids and Submitted Sell Orders shall be accepted or rejected in the
following order of priority and all other Submitted Bids shall be
rejected:
(A) the Submitted Sell Orders of Existing Holders shall be
accepted and the Submitted Bid of each of the Existing Holders specifying
any rate per annum that is higher than the Winning Bid Rate shall be
accepted, thus requiring each such Existing Holder to sell the
Outstanding AMPS that are the subject of such Submitted Sell Order or
Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is lower than the Winning Bid Rate
shall be rejected, thus entitling each such Existing Holder to continue
to hold the Outstanding AMPS that are the subject of such Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders
specifying any rate per annum that is lower than the Winning Bid Rate
shall be accepted;
(D) the Submitted Bid of each of the Existing Holders
specifying a rate per annum that is equal to the Winning Bid Rate shall
be rejected, thus entitling each such Existing Holder to continue to hold
the Outstanding AMPS that are the subject of such Submitted Bid, unless
the number of Outstanding AMPS subject to all such Submitted Bids shall
be greater than the number of Outstanding AMPS ("Remaining Shares") equal
to the excess of the Available AMPS over the number of Outstanding AMPS
subject to Submitted Bids described in paragraph 10(e)(i)(B) and
paragraph 10(e)(i)(C), in which event the Submitted Bids of each such
Existing Holder shall be accepted, and each such
60
<PAGE> 61
Existing Holder shall be required to sell Outstanding AMPS, but only in
an amount equal to the difference between (1) the number of Outstanding
AMPS then held by such Existing Holder subject to such Submitted Bid and
(2) the number of AMPS obtained by multiplying (x) the number of
Remaining Shares by (y) a fraction the numerator of which shall be the
number of Outstanding AMPS held by such Existing Holder subject to such
Submitted Bid and the denominator of which shall be the sum of the number
of Outstanding AMPS subject to such Submitted Bids made by all such
Existing Holders that specified a rate per annum equal to the Winning Bid
Rate; and
(E) the Submitted Bid of each of the Potential Holders
specifying a rate per annum that is equal to the Winning Bid Rate shall
be accepted but only in an amount equal to the number of Outstanding AMPS
obtained by multiplying (x) the difference between the Available AMPS and
the number of Outstanding AMPS subject to Submitted Bids described in
paragraph 10(e)(i)(B), paragraph 10(e)(i)(C) and paragraph 10(e)(i)(D) by
(y) a fraction the numerator of which shall be the number of Outstanding
AMPS subject to such Submitted Bid and the denominator of which shall be
the sum of the number of Outstanding AMPS subject to such Submitted Bids
made by all such Potential Holders that specified rates per annum equal
to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than
because all of the Outstanding AMPS are subject to Submitted Hold
Orders), subject to the provisions of paragraph 10(e)(iii), Submitted
Orders shall be accepted or rejected as follows in the following order of
priority and all other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any
rate per annum that is equal to or lower than the Maximum Applicable Rate
shall be rejected, thus entitling such Existing Holder to continue to
hold the Outstanding AMPS that are the subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any
rate per annum that is equal to or lower than the Maximum Applicable Rate
shall be accepted, thus requiring such Potential Holder to purchase the
Outstanding AMPS that are the subject of such Submitted Bid; and
61
<PAGE> 62
(C) the Submitted Bids of each Existing Holder specifying any
rate per annum that is higher than the Maximum Applicable Rate shall be
accepted and the Submitted Sell Orders of each Existing Holder shall be
accepted, in both cases only in an amount equal to the difference between
(1) the number of Outstanding AMPS then held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and (2) the number
of AMPS obtained by multiplying (x) the difference between the Available
AMPS and the aggregate number of Outstanding AMPS subject to Submitted
Bids described in paragraph 10(e)(ii)(A) and paragraph 10(e)(ii)(B) by
(y) a fraction the numerator of which shall be the number of Outstanding
AMPS held by such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and the denominator of which shall be the number of
Outstanding AMPS subject to all such Submitted Bids and Submitted Sell
Orders.
(iii) If, as a result of the procedures described in paragraph
10(e)(i) or paragraph 10(e)(ii), any Existing Holder would be entitled or
required to sell, or any Potential Holder would be entitled or required
to purchase, a fraction of a share of AMPS on any Auction Date, the
Auction Agent shall, in such manner as in its sole discretion it shall
determine, round up or down the number of AMPS to be purchased or sold by
any Existing Holder or Potential Holder on such Auction Date so that each
Outstanding share of AMPS purchased or sold by each Existing Holder or
Potential Holder on such Auction Date shall be a whole share of AMPS.
(iv) If, as a result of the procedures described in paragraph
10(e)(i), any Potential Holder would be entitled or required to purchase
less than a whole share of AMPS on any Auction Date, the Auction Agent
shall, in such manner as in its sole discretion it shall determine,
allocate AMPS for purchase among Potential Holders so that only whole
AMPS are purchased on such Auction Date by any Potential Holder, even if
such allocation results in one or more of such Potential Holders not
purchasing any AMPS on such Auction Date.
(v) Based on the results of each Auction, the Auction Agent
shall determine, with respect to each Broker-Dealer that submitted Bids
or Sell Orders on behalf of Existing Holders or Potential Holders, the
aggregate number of Outstanding AMPS to be
62
<PAGE> 63
purchased and the aggregate number of the Outstanding AMPS to be sold by
such Potential Holders and Existing Holders and, to the extent that such
aggregate number of Outstanding shares to be purchased and such aggregate
number of Outstanding shares to be sold differ, the Auction Agent shall
determine to which other Broker-Dealer or Broker-Dealers acting for one
or more purchasers such Broker-Dealer shall deliver, or from which other
Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, Outstanding AMPS.
(f) Miscellaneous. The Trust may interpret the provisions of this
paragraph 10 to resolve any inconsistency or ambiguity, remedy any formal defect
or make any other change or modification that does not substantially adversely
affect the rights of Beneficial Owners of AMPS. A Beneficial Owner or an
Existing Holder (A) may sell, transfer or otherwise dispose of AMPS only
pursuant to a Bid or Sell Order in accordance with the procedures described in
this paragraph 10 or to or through a Broker-Dealer, provided that in the case of
all transfers other than pursuant to Auctions such Beneficial Owner or Existing
Holder, its Broker-Dealer, if applicable, or its Agent Member advises the
Auction Agent of such transfer and (B) except as otherwise required by law,
shall have the ownership of the AMPS held by it maintained in book entry form by
the Securities Depository in the account of its Agent Member, which in turn will
maintain records of such Beneficial Owner's beneficial ownership. Neither the
Trust nor any Affiliate shall submit an Order in any Auction. Any Beneficial
Owner that is an Affiliate shall not sell, transfer or otherwise dispose of AMPS
to any Person other than the Trust. All of the Outstanding AMPS of a series
shall be represented by a single certificate registered in the name of the
nominee of the Securities Depository unless otherwise required by law or unless
there is no Securities Depository. If there is no Securities Depository, at the
Trust's option and upon its receipt of such documents as it deems appropriate,
any AMPS may be registered in the Share Register in the name of the Beneficial
Owner thereof and such Beneficial Owner thereupon will be entitled to receive
certificates therefor and required to deliver certificates therefor upon
transfer or exchange thereof.
11. Securities Depository; Share Certificates. (a) If there is a
Securities Depository, one certificate for all of the AMPS of each series shall
be issued to the Securities Depository and registered in the name of the
Securities Depository or its nominee. Additional certificates may be issued as
necessary to represent AMPS. All such certificates shall bear a legend to the
effect
63
<PAGE> 64
that such certificates are issued subject to the provisions restricting the
transfer of AMPS contained in this Certificate of Designation. Unless the Trust
shall have elected, during a Non-Payment Period, to waive this requirement, the
Trust will also issue stop-transfer instructions to the Auction Agent for the
AMPS. Except as provided in paragraph (b) below, the Securities Depository or
its nominee will be the Holder, and no Beneficial Owner shall receive
certificates representing its ownership interest in such shares.
(b) If the Applicable Rate applicable to all AMPS of a series shall be
the Non-Payment Period Rate or there is no Securities Depository, the Trust may
at its option issue one or more new certificates with respect to such shares
(without the legend referred to in paragraph 11(a)) registered in the names of
the Beneficial Owners or their nominees and rescind the stop-transfer
instructions referred to in paragraph 11(a) with respect to such shares.
12. Personal Liability. The Declaration of Trust establishing
MuniHoldings Florida Insured Fund V, dated May 10, 1999, a copy of which,
together with all amendments thereto, is on file in the office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "MuniHoldings
Florida Insured Fund V" refers to the trustees under the Declaration
collectively as trustees, but not as individuals or personally; and no trustee,
shareholder, officer, employee or agent of the Trust shall be held to any
personal liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise in connection with the
affairs of the Trust, but the "Trust Property" only shall be liable.
64
<PAGE> 65
MUNIHOLDINGS FLORIDA INSURED FUND V
CERTIFICATE
The undersigned hereby certifies that he is the Secretary of MuniHoldings
Florida Insured Fund V, an unincorporated business trust organized and existing
under the laws of The Commonwealth of Massachusetts (the "Trust"), that annexed
hereto is the Certificate of Designation dated , 1999, establishing the
powers, qualifications, rights and preferences of the Auction Market Preferred
Shares, Series A and the Auction Market Preferred Shares, Series B of the Trust,
which Certificate has been adopted by the Board of Trustees of the Trust in a
manner provided in the Trust's Declaration of Trust.
Dated this th day of , 1999.
-----------------------------------
William E. Zitelli, Jr.
Secretary
<PAGE> 1
EXHIBIT (1)
BROWN & WOOD LLP
One World Trade Center
New York, New York 10048-0557
Telephone (212) 839-5300
Facsimile (212) 839-5599
July 28, 1999
MuniHoldings Florida Insured Fund V
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Dear Sirs,
This opinion is being furnished in connection with the registration by
MuniHoldings Florida Insured Fund V, a Massachusetts business trust (the
"Fund"), of 1,400 shares of Auction Market Preferred Shares, par value $0.10 per
share, (the "Shares"), under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to the Fund's registration statement on Form N-2, as
amended (the "Registration Statement"), under the Securities Act. The Shares
will be issued pursuant to the Certificate of Designation (the "Certificate of
Designation") to be filed with the Secretary of State of the Commonwealth of
Massachusetts (the "Secretary of the Commonwealth").
As counsel for the Fund, we are familiar with the proceedings taken by it
in connection with the authorization, issuance and sale of the Shares. In
addition, we have examined and are familiar with the Declaration of Trust, as
amended, of the Fund, the By-Laws of the Fund, and such other documents as we
have deemed relevant to the matters referred to in this opinion.
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement, will
be legally issued, fully paid and non-assessable preferred shares of the Fund.
<PAGE> 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus constituting
a part thereof.
Very truly yours,
/s/ Brown & Wood LLP
2
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
MuniHoldings Florida Insured Fund V
We consent to the use in Pre-Effective Amendment No. 1 to Registration Statement
No. 333-81995 of our report dated July 19, 1999 which appears in the Statement
of Additional Information which is a part of such Registration Statement and to
the reference to us under the caption "Experts" appearing in the Prospectus,
which also is a part of such Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
July 27, 1999
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<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUL-23-1999
<PERIOD-END> JUL-23-1999
<INVESTMENTS-AT-COST> 58137475
<INVESTMENTS-AT-VALUE> 58131985
<RECEIVABLES> 56758826
<ASSETS-OTHER> 100005
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 114990816
<PAYABLE-FOR-SECURITIES> 62380841
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 139391
<TOTAL-LIABILITIES> 62520232
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52461682
<SHARES-COMMON-STOCK> 3506667
<SHARES-COMMON-PRIOR> 3506667
<ACCUMULATED-NII-CURRENT> 18392
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4000)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5490)
<NET-ASSETS> 52470584
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
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<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 52470584
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
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<AVERAGE-NET-ASSETS> 52470584
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
</TABLE>
